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UK factory gate inflation at 28-month high in February

Surging oil and food prices sent annual factory gate inflation to its highest level since October 2008 last month, official figures reveal.

Office for National Statistics data on producer prices from the manufacturing industry revealed input costs rose by a further 1.1 per cent between January and February, which pushed the annual rate to 5.3 per cent - a 28-month high.

Output prices also rose at the fastest annual rate since October 2008, although the month-on-month increase more than halved to 0.5 per cent.

Higher petrol costs were largely behind the increase, although the latest hike caused by the Middle East unrest is yet to show in the figures.

Economist Howard Archer of IHS Global Insight said the figures would heap further pressure on the Bank of England to raise interest rates in order to calm inflation.

“With oil prices up around 114 US dollars a barrel and commodity prices still elevated, high input prices are likely to maintain pressure on manufacturers to raise their output prices in the near term at least.

“The Bank of England will be desperately hoping that input costs will soon fall back and that manufacturers' ability to raise their prices will be limited by significant excess capacity,” Archer said.

But there was a glimmer of hope for Britain's above-target inflation as the significant slowdown in output prices shows manufacturers are still holding off from passing on the full extent of their input costs.

Core output prices - which do not include food, tobacco and fuel costs - rose by 0.1 per cent, taking the annual rate down to 3.1 per cent.

Samuel Tombs at Capital Economics said producer price growth would not feed through to wider inflation until 2012.

“February's producer prices figures have provided a bit of reassurance that the current high level of CPI inflation will not persist much beyond this year,” he said.

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