Commodity price falls should relieve inflation burden

6 May 2011

6 May 2011 | Lindsay Clark

Recent falls in key commodity prices should ease pressure on inflation, an economist has predicted.

Although latest inflation figures from the Office for National Statistics (ONS) showed annual inflation of factory input prices reached 17.6 per cent in April - compared with 14.8 per cent in the year to March - Chris Williamson, director and chief economist at research firm Markit said manufacturing costs and output inflation are likely to ease.

“High commodity prices have been the principal driving forces behind stubbornly high inflation in recent months so, if sustained, the recent fall in prices for key manufacturing inputs such as oil and copper should feed through to lower consumer price inflation in coming months,” he said.

The ONS figures bear this out, as the monthly rate of inflation in input costs fell from 3.8 per cent in March to 2.6 per cent in April. Meanwhile, the commodity markets have seen significant falls in the last couple of days, and OPEC prices for crude oil have been falling for the past week.

"Survey data [from the ONS] also suggest that these official numbers should show an easing in price pressures soon, especially for input costs,” Williamson said. “The manufacturing PMI survey showed raw material prices rising at the weakest rate for five months in April, the rate of increase easing to the greatest extent since November 2008."

Buyers have been plagued by price inflation during 2011, caused by rising demand in the Far East and Asia, and exacerbated by natural disasters interrupting supply lines.

  • SM will have a feature on how to mitigate the impact of inflation in the June issue.

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