U.K. Producer Prices Rise for Sixth Month as Oil Costs Climb

By Jennifer Ryan

Sept. 11 (Bloomberg) -- U.K. producer prices rose for a sixth month in August as the cost of raw materials jumped the most in more than a year, a sign inflation pressures are persisting in the economy.

The price of goods at factory gates climbed 0.2 percent from July, when it rose at the same pace, the Office for National Statistics said today in London. Economists predicted a 0.3 percent increase, according to the median of 18 forecasts in a Bloomberg News survey. Raw material costs including oil jumped 2.2 percent on the month, the most since June 2008.

Bank of England policy makers yesterday confirmed they will buy as much as 175 billion pounds ($290 billion) of bonds to cement the recovery and stave off the threat of deflation. Evidence that manufacturers can keep pushing through price increases suggests they are succeeding in defending profit margins as they struggle to shake off the recession.

``Oil and other commodity prices have risen sharply and firms are passing those along,'' David Page, an economist at Investec Securities in London, said before the report. ``Though activity is picking up again and that's helping higher prices get pushed through, inflation will remain subdued for a number of years.''

The increase in producer prices was led by petroleum products and other items such as scrap metal, the statistics office said. On the year, prices dropped 0.4 percent, the least in three months.

Profit Margins

IMI Plc, the world's biggest maker of pneumatic controls, said Aug. 27 that profit margins improved as it raised average selling prices as much as 2 percent in the first half from a year earlier. Fenner Plc, the world's largest conveyor-belt maker, said on Sept. 7 that the last two months have shown ``some signs'' of improvement.

Core producer prices, which exclude oil, food, tobacco and alcohol products, climbed 0.2 percent on the month after gaining 0.4 percent in July.

Manufacturers have raised prices to absorb higher costs of raw materials. The increase in input prices was more than double the 1 percent median forecast in a Bloomberg News survey of 14 economists. The gain was led by crude oil prices, which jumped 9.4 percent on the month, the statistics office said.

Oil costs have risen more than 60 percent this year as signs the world economy is emerging from the worst economic contraction since World War II stoke demand.

The Bank of England's quarterly forecasts, published last month, show the economy contracting about 4.4 percent this year, with growth resuming on an annual basis in the first quarter of 2010. The slump has pushed the inflation rate down to 1.8 percent, below the bank's 2 percent target.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net