Factory gate inflation hits 4.2%

Soaring oil and food costs have pushed inflation at the factory gate to the highest since April, threatening to drive up high street prices. Producer output prices climbed 0.5% last month, taking the annual rate to 4.2%, the highest since April, figures from the Office for National Statistics showed this morning. Input prices surged at an annual rate of 12.5%, also the highest since April. The price of crude oil jumped by 26.2% while the cost of home-produced food materials is 11.3% higher on the year, its biggest annual rise since 2008. Consumer price inflation is already far above the Bank of England's 2% target and is forecast to rise towards 4% in coming months. The Bank has come under pressure to raise interest rates , but some City analysts argue that policymakers have little room to manoeuvre. "This is primarily an oil and commodity price effect," said Peter Dixon at Commerzbank. "It is going to raise pressure on the Bank of England … But the question is, what will a rate hike do to curb this problem? Probably not very much because it's a commodity price effect, it's a global problem." The core measure of output prices, which strips out volatile items like oil, fell to 2.9%, the lowest since April. The Bank's monetary policy committee will have seen the data at its monthly meeting yesterday, where it voted to hold interest rates at 0.5% . Alan Clarke at BNP Paribas said minutes of the meeting, out in less than a fortnight, are likely to show "growing unease about inflation based on this and the other bad news we've had on inflation in the last few weeks".