UK producer prices climbed at the fastest annual pace since at least 1986 in April as raw-material costs jumped, adding to the case for the Bank of England to moderate the pace of interest-rate cuts.
Prices charged by factories rose 7.5 per cent from a year earlier, the most since records began two decades ago, the Office for National Statistics said in London today.
On the month, prices increased 1.4 per cent, also the fastest pace on record.
Bank of England Governor Mervyn King said last month that commodity-price gains will push inflation to the government's 3 per cent limit, presenting policy makers with a "difficult balancing act".
The central bank kept the benchmark rate at 5 per cent last week after three cuts since December to prevent the economy from tumbling into a recession.
"The numbers intensify the dilemma faced by the members of the Bank of England's Monetary Policy Committee," Neil Mackinnon, chief economist at ECU Group and a former UK Treasury official, said. "It's going to be very difficult for the MPC to implement near-term interest-rate reductions."
Sterling rose as much as 0.3 per cent against the dollar after the report. It traded at $1.9557 as of 9.43am in London.
All 10 categories of producer prices rose on the month and on the year, the statistics office said. The gain from March was led by increases in other manufactured products, tobacco, alcohol and petroleum products.
So-called core producer prices, which exclude food, beverages, tobacco and petroleum, rose 4.6 per cent in April from a year earlier, the most since 1995.
Mr King told lawmakers April 29th that inflation may hold close to 3 per cent for longer than last year while growth slows at the same time. British law requires him to write a letter of explanation to the government if inflation strays more than 1 percentage point above or below the 2 per cent target.
"Setting bank rate to meet the inflation target is not straightforward when the outlook is so uncertain," he said.
Oil prices climbed to a record $126.20 per barrel today. Wheat prices have increased about 75 per cent over the past year and the cost of rice has more than doubled.
Bloomberg