Output price inflation in the U.K. eased to its lowest level in nearly three years in June as falling prices of crude oil and imported metals allowed manufacturers to reduce charges to cope with weak demand.
The output price index for home sales rose 2.3 percent year-on-year, after the 2.9 percent increase in May, the Office for National Statistics said Friday. Economists had expected prices to rise 2.4 percent.
The latest rate of increase was the weakest since October 2009, when the price index rose 1.5 percent.
June's U.K. producer prices figures highlight the downward pressure on prices emerging at the start of the inflation pipeline, Capital Economics economist Samuel Tombs said.
Month-on-month, the output price index fell 0.4 percent, following a 0.2 percent decline in April. It was the largest monthly fall since November 2008, the ONS said. Economists had forecast a 0.2 percent drop.
The output price index, excluding food, beverages, tobacco and petroleum, rose 2 percent annually in June compared with a rise of 2.3 percent in May. This is the lowest annual rate since January 2010. On a monthly basis, the index fell 0.2 percent.
In the year to June, the total input price index fell 2.3 percent, following a flat reading in the preceding month. The last time the annual rate was lower was in September 2009, when the index fell 6.1 percent. Expectations were for a 2.2 percent drop.
On a monthly basis, the total input price index dropped 2.2 percent, compared with a fall of 2.6 percent in April. It was expected to drop 2.1 percent on a monthly basis.
The largest contributors to the fall in input costs were crude oil and imported metals. Crude oil prices fell 10.4 percent in the year to June, which is the lowest annual rate since September 2009.
Costs of imported metals dropped 10 percent annually in June. This is the lowest annual rate since July 2009, the ONS said.
"The sharp retreat in oil prices and lower imported metals prices is easing the pressure on manufacturers' margins and giving them increased scope to limit prices to win business," IHS Global Chief U.K. and European Economist Howard Archer said.
The June producer price data are benign, supporting hopes that consumer price inflation will head down appreciably further over the coming months, Archer noted.
"It would also facilitate further stimulative action later this year by the Bank of England should the economy fail to improve," he added.
With inflation in check and the U.K. economy in a double-dip recession, the Bank of England on Thursday relaunched its quantitative easing program adding GBP 50 billion to the asset purchase plan.
by RTT Staff Writer
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