Input price inflation hits five-year high

Will Green is news editor of Supply Management
2 November 2016

Input costs for UK manufacturing rose to a 69-month high in October as the sector felt the effects of the weak pound.

In a survey firms noted higher costs for energy, metals and food products, though the pound’s depreciation also boosted exports.

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index posted 54.3 in October, down on September’s reading of 55.5 but still signalling growth against the no-change position of 50.

The report found steep input price increases were registered across consumer, intermediate and investment goods sectors, and at small, medium and large-scale producers alike.

Factory gate prices also rose at the steepest pace since June 2011, mainly as a result of higher input costs.

David Noble, group CEO, CIPS, said: “The impact of the pound’s performance against the euro and dollar was particularly felt in imports as manufacturers experienced one of the fastest rises in average costs for raw materials in the 25-year survey history. Especially highlighted were costs for flour, dairy products, steel and zinc.

“With rates of inflation moving higher, policymakers will need to keep a close watch and possibly change tack if needed to stay well within their targets.”

The survey found the strongest performing sub sector was intermediate goods, which saw production rise at the quickest pace in a year. Respondents said currency depreciation had increased inflows of export business, resulting in new orders from the US, EU and China.

Rob Dobson, senior economist at IHS Markit, said: “If signs of ongoing solid output expansion and rising price pressures are also experienced elsewhere in the economy, the chances of a further cut in interest rates before year end are virtually nil.”

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