Factory gate price rises showed signs of cooling yesterday after it emerged manufacturers held off passing on increasing costs in May.
The Office for National Statistics said "output prices" rose 0.4 per cent between April and May, the third successive drop in the monthly inflation figure.
The annual rate held steady at 2.5 per cent, unchanged from last month, while core output prices, excluding excise duties, rose by 2.3 per cent, hitting an eight-month low.
But the data showed that manufacturers themselves are paying more for goods, with a jump in imported metal and parts and equipment leaving them facing a higher-than-expected 1.2 per cent surge in year-on-year input prices.
Economists said that while manufacturers have kept their prices in check, the figures suggested this may not last as they seek to boost margins and keep up with rising input costs.
Interest rate setters at the Bank of England will be taking particular note of the data in a busy week for economic figures, with monthly inflation figures due out today.
Howard Archer, chief UK and European economist at Global Insight, said the Bank would be relieved to see a stabilisation in factory gate prices, which may push back a further interest rate rise to later in the summer.
He added: "On the output side, the producer price data are reasonably comforting for the Bank of England. This may slightly alleviate the Monetary Policy Committee's concerns that firms are finding it easier to push through price hikes.
"Nevertheless, with input prices spiking up in May, the incentive remains for manufacturers to try to raise prices to boost their margins. We still expect the Bank of England to raise interest rates by a further 25 basis points by August at the latest."
Russell Luckock, chief executive of Birmingham presswork firm AE Harris, said there had to be a rigid control on prices in the components sector.
There was no possibility of rises because "the Sword of Damocles" - competition from China - hung over the sector.
"If we don't maintain or reduce prices customers will just put the work to China," said Mr Luckock.
With Chinese prices rising 15-20 per cent, UK firms simply had to hang on for three to five years by which time they should be back to competitive.
Meanwhile, output growth in the West Midlands was at its fastest pace in six months in May, and firms are taking on more workers.
Commenting on the latest Purchasing Managers Index business survey data, produced for the Royal Bank of Scotland by NTC Economics, RBS economist Julien Seetharamdoo said: "The region's private sector economy registered strong growth of both output and new orders in May.
"What's more, the region is now a key area for jobs growth, with the second-sharpest rate of employment expansion of the twelve UK regions covered by the survey. That said, strengthening demand was accompanied by a rise in inflationary pressures, as input cost inflation picked up for the first time since the start of the year."
David Hersey, regional director, corporate banking for RBS in the West Midlands, added: "The data for May looks encouraging with good news on the strong growth of both output and new orders combined with the increase in employment expansion. One note of possible caution is that inflationary pressures appear to be at an accelerated rate in the region and West Midlands companies will need to be mindful how they manage this moving forward."
The seasonally adjusted Business Activity Index rose to 57.0 in May from 56.1 in April, signalling the fastest growth of output for six months.
Activity growth in services was maintained at a marked level, while a stronger output expansion was indicated at manufacturers.
New business volumes at West Midlands private sector firms increased for the fiftieth successive month in May, and at a stronger pace than in April.
New order growth was broad-based across manufacturing and services, with the latter posting the steeper increase.
The rate of job creation was unchanged from that seen in April, and was one of the highest indicated by the survey to date. Manufacturing employment growth was stronger than in services.