Producer prices ease as oil dips

Prices paid for manufactured goods in August were up 2.6% on a year ago, down from July's rate of 2.9%.

Prices fell 0.2% during August, reflecting the drop in world oil prices as the ceasefire held in Lebanon and US petrol supplies remained healthy.

The Bank of England kept interest rates on hold this month at 4.75%, but it is still watching inflation intently.

Supply chain pressures

Inflationary pressures have been building with consumer price inflation above the government's 2% target.

But despite a sharp rise in fuel costs this year, experts believe this has not yet translated into a sustained escalation in overall consumer prices.

"This is a broadly very reassuring set of data for the Bank of England"
Howard Archer, Global Insight

Companies found themselves paying less for fuel and other raw materials in August, as oil prices slipped below $70 a barrel.

Raw material costs were down 1.4% on a monthly basis but were still 7.6% higher in August than a year ago.

One economist said the figures might influence the Bank of England in its deliberations over future rate movements.

"This is a broadly very reassuring set of data for the Bank of England, which should temporarily alleviate its concerns that inflationary pressures are building up through the supply chain," said Howard Archer, chief economist at analysts Global Insight.

But he added that the Bank would focus more closely on changes to consumer prices, wages and consumer spending.

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