British factory gate inflation fell for a second consecutive month in September, suggesting price pressures at the start of the inflation pipeline are beginning to ease.
The Office for National Statistics said unadjusted output prices fell 0.3 per cent in September, taking the annual rate of increase down to 8.5 per cent from 9.1 per cent in August.
Economists had forecast a fall of 0.4 per cent on the month, to give a rate of 8.8 per cent producer price inflation year on year.
“On the whole (this is) a pleasant surprise,” said Alan Clarke, chief UK economist at BNP Paribas.
Unadjusted input prices fell 1.2 per cent between August and September, mostly due to lower crude oil prices, but were still up 24.5 per cent over the past year.
“Overall (there is) improving news on upstream inflationary pressures, albeit from a high level,” said Mr Clarke. “We expect the trend to remain downwards from here, enabling the Bank of England to concentrate more on the slowing economy with less concern about inflation remaining stubbornly high.”
The BoE said last week that consumer price inflation was yet to peak, but nonetheless went ahead with a half percentage point rate cut in joint action with other major central banks to help restore economic confidence shattered by banking turmoil.
The ONS also said it had rebased its series to 2005 from 2000 and would no longer publish seasonally adjusted data for the main indices, because it did not believe the data was sufficiently seasonal.
The inflation fall prompted Howard Archer, chief UK economist at Global Insight, to predict another half-point cut in interest rates by the year end and a cut to three per cent or lower next year.
“The further retreat in producer output and input prices in September reinforces belief that underlying inflationary pressures have peaked even though annual consumer price inflation could well have climbed to five per cent in September,” he said.
“Markedly weaker manufacturing activity and demand is now increasingly diluting companies’ pricing power.”