Core manufacturers' output prices rose at their sharpest monthly rate in nine years in Britain in August in a sign that the soaring cost of commodities is feeding through.
The Office for National Statistics said producer output prices excluding food, drink, tobacco and petroleum products rose by 0.5 per cent in August - the biggest jump since July 1995 and five times the rate predicted by analysts.
That took the annual rate of core factory gate inflation to 2.1 per cent - its highest since June 1996.
The ONS blamed sharp price rises for steel scrap because of buoyant global demand.
Gilts extended losses while the pound climbed as dealers reckoned the figures had increased the chances of the Bank of England raising interest rates again in the coming months.
"The main shock here is the leap in core output prices. The data is a bit disturbing. The key question is whether this will filter through to the High Street and the Monetary Policy Committee will be vigilant about inflation," said Mr Philip Shaw, chief economist at Investec.
The BoE left interest rates unchanged at 4.75 per cent last week but most analysts still expect another hike in November. Consumer prices data for August will be published tomorrow.
Overall output prices were also up, rising by 0.2 per cent on the month for an annual rate of 2.6 per cent, the same as in the previous two months - which was the highest in eight years.
And the rest of the report suggested continued upward pressure on factory gate prices in the months ahead if manufacturers even try to maintain profit margins.
The cost of raw materials shot up by 1.6 per cent on the month, leaving it 4.8 percent up on the year.
The chief reason was a surge in crude oil prices which increased by 17.8 per cent -- the steepest hike since May 2000.