British factory gate inflation rose in March at its fastest pace in 16 months, driven by a surge in the cost of oil and imported goods, official data showed today.
The Office for National Statistics said producer output prices rose 0.9 per cent on the month, more than twice the jump analysts had forecast, for an annual rise of 5.0 per cent - its highest since November 2008.
The pound rose to a seven-week high against the euro and gilt futures hit a session low as investors wondered whether British interest rates would stay at record lows for as long as they previously expected.
"The producer price data may well lift speculation that interest rates could rise well before the end of the year," said Howard Archer at IHS Global Insight.
The Bank of England has forecast that consumer price inflation - currently running a full percentage point above the BoE's 2 per cent target - will fall back below target later this year due to the large amount of slack in the economy.
While many economists still expect price pressures to ease over the year, some questioned whether consumer price inflation would fall as fast as the central bank hoped.
"I think there are genuine signs here that we will see a slower pace of deceleration in the CPI numbers than we thought previously," said Alan Clarke, UK economist at BNP Paribas.
The rise in factory gate prices was led by petroleum products, which added more than two percentage points to the annual rate and are up by a quarter since a year ago.
Even excluding the direct effect of oil prices, factory gate inflation showed a marked rise. Core producer output price inflation, which strips out food, beverages, tobacco and petroleum products, rose by an annual 3.6 per cent, its highest rate since February 2009.
There was also a sharper than expected jump in input price inflation, which rose 10.1 per cent on the year, up from 7.5 per cent in February and the biggest annual jump since October 2008.
Higher crude oil prices accounted for around 95 per cent of that annual rise. On the month, crude oil prices rose 9.7 per cent and imported metals were up 5.3 per cent, the biggest monthly jump since records for that category began in February 1991.
The cost of a barrel of oil has doubled in dollar terms over the past year and is still on the rise. Brent crude hit a 17-month high above $86 a barrel this week.
Reuters