UK producer prices fall in hasty pace

Bloomberg

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Prices fell 1 percent, the most since records began in 1986, after declining 0.2 percent in September, the Office for National Statistics said yesterday.
 
The Bank of England cut the key interest rate to the lowest since 1955 on Nov. 6 to limit the damage inflicted by the worst financial crisis in almost a century. With policy makers warning that inflation risks falling too far below the 2 percent target, economists predict more monetary easing.

"Now that we're clearly in recession, there's no way producers can raise prices, and they may have to start cutting them," said Howard Archer, an economist at IHS Global Insight in London. "The Bank of England is going to continue to cut rates."

Four out of 10 categories showed price declines on the month, led by a 5.6 percent drop in petroleum product costs, the biggest since 1986, the statistics office said. Core producer prices, which exclude food, beverages, tobacco and petroleum, fell 0.5 percent.

Fuel and raw material costs fell 5.6 percent from September, the fastest pace since 1986. That's easing pressure on company profit margins. Input prices rose 13.8 percent from a year earlier, almost half the 24 percent pace of the previous month. The price of goods leaving factory gates rose 6.8 percent on the year, down from 8.5 percent.

Consumer-price inflation reached 5.2 percent in September, the highest since the Bank of England won rate-setting independence in 1997. Policymakers warned when they cut interest rates last week that the economy is deteriorating so sharply that inflation risks slowing below the target rate.