Factory gate inflation picked up more than expected in September to its sharpest rate in five months as the price of petroleum products surged, official data showed yesterday.
The Office for National Statistics said producer output prices rose an unadjusted 0.7 per cent last month, taking the annual rate of increase to 3.3 per cent from three per cent in August.
Analysts had predicted the rate would stay at three per cent.
The main reason was petroleum products, the price of which rose by 17.4 per cent on the year - the sharpest rate in over five years. ..TEXT: But core output price inflation also picked up, to 2.1 per cent against expectations of 1.9 per cent.
The figures could trouble the Bank of England.
"The sharp rise in producer output price inflation in September is unlikely to go down well with the more hawkish members of the Monetary Policy Committee and may encourage them to dig in their heels over an interest rate cut," said Howard Archer, economist at Global Insight.
The BoE held interest rates at 4.5 per cent last week for the second month running but many analysts are predicting it will cut borrowing costs again as early as next month.
They argue policymakers may take heart from news that raw material costs unexpectedly fell in September as oil prices came off record highs.
Seasonally adjusted input prices fell by 0.3 per cent, bringing the annual rate of increase down to 10.3 per cent from 12.5 per cent in August.
This was mainly due to crude oil prices which fell 1.9 per cent on the month but were still up a staggering 44.1 per cent on the year. Fuel prices, however, continued to rise.
The cost of most other commodities declined and there was a notable 0.8 per cent decline in imported food material prices.
Meanwhile, the West Midlands Purchasing Managers Economic Index, produced for the Royal Bank of Scotland by NTC Research, found further expansion of business activity in the region's private sector economy in September, the 13th successive month of growth.
The index posted a figure of 53.0, down from 53.8 in August, where anything above 50 indicates growth.
An increased share of business activity was taken up by work on outstanding projects during the month, as new orders rose only marginally and backlogs declined at the sharpest rate for 12 months.
The West Midlands private sector workforce contracted in September at the sharpest rate since February. Employment has declined in seven months of the year so far, although the service sector workforce has expanded continuously since April 2005. Manufacturing employment fell sharply in September.
A further sharp acceleration of input price inflation was recorded in September, with the pace increasing to a seven-month high. The seasonally adjusted Input Prices Index posted 65.2, from 58.5 in August.
Output price inflation also rose to a seven-month high in September, although it remained well below input price inflation due to competitive pressures.
RBS economist David Fenton said: "It was another solid month for the West Midlands economy.
"The headline output index edged down a notch in September, but remained consistent with a robust level of activity. "