U.K. Producer Prices Increase 2.9% From Year Earlier

By Scott Hamilton

Dec. 11 (Bloomberg) -- U.K. producer prices rose at the fastest annual pace in nine months in November after raw- material costs increased, a sign inflation pressures are building as the recession eases.

The prices of goods at factory gates climbed 2.9 percent from a year earlier, the Office for National Statistics said today in London. The result matched the median forecast of 16 economists in a Bloomberg News survey. From October, prices increased 0.2 percent, in the ninth consecutive monthly gain.

The report suggests factories are finding scope to charge their customers more as the economic slump abates. Bank of England policy makers yesterday kept up their plan to buy 200 billion pounds ($326 billion) in the fight to prevent deflation taking hold in the economy.

“This raises the risks on inflation being more sticky than the BOE expects,” Ross Walker, an economist at Royal Bank of Scotland Group Plc in London, said in a telephone interview. “We’re all expecting a spike in inflation early next year, but then the BOE expects inflation to fall back sharply. I think that’s too optimistic.”

The pound was little changed after the report. The U.K. currency rose 0.5 percent today against the dollar and traded at $1.6317 as of 9:54 a.m. in London. Two-year gilts were up 2 basis points at 1.18 percent.

All 10 categories of producer prices increased from a year earlier, led by petroleum products, and tobacco and alcohol, the statistics office said.

Core Prices

Excluding food, beverages, tobacco and petroleum products, prices rose 2 percent from a year earlier. They fell 0.1 percent from October, the statistics office said.

Manufacturers face pressure to raise prices to protect margins as commodity costs fluctuate.

DS Smith Plc, the owner of the Spicers office products brand, said yesterday that it was raising the selling price of its cardboard box packaging at its U.K. operations to recover high waste-paper costs and rising energy expenses.

Robert Wiseman Dairies Plc, Scotland’s largest provider of fresh milk, said on Nov. 16 that the increasing oil price was going to make it “difficult” to maintain the level of its earnings.

Raw-material costs increased 4 percent from a year earlier, the biggest gain since November 2008, the statistics office said. Crude-oil costs, which have increased by about half in the past year, led the gain.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net.