Manufacturers' raw material costs fell for the second month running in June, mainly because of a drop in gas prices, official figures showed yesterday.
The office for National Statistics revealed that input prices on a seasonally adjusted basis slipped 0.2 per cent in June from the previous month against expectations of no change. In May, input prices dropped 0.6 per cent, down on the 0.7 per cent previously estimated.
On a year-on-year basis, input prices were 11 per cent higher, lower than the 11.3 per cent increase expected by analysts and May's equivalent 13.7 per cent which was revised down from 13.9 per cent. The latest annual increase is the lowest since October 2004.
The statistics office said the monthly decline mainly reflected price falls in fuels and crude oil, partially offset by rises in home produced food and other imported parts and equipment.
Fuel prices were 4.2 per cent lower between May and June, largely because of a 13 per cent decline in gas prices, while crude oil prices dipped 1.2 per cent on the month though they were 24.6 per cent higher on the year.
But there was a 1.2 per cent increase in home produced foods and a 0.2 per cent rise in imported parts and equipment.
Despite the fall in input prices, the statistics office said prices at the factory gate continued to rise in June.
O n a non-seasonally adjusted basis, output prices were ahead 0.1 per cent, in line with expectations, but lower than the 0.4 per cent recorded in May which was originally estimated at 0.3 per cent.
On a year-on-year basis, output prices were 3.3 per cent higher, up on the 3.1 per cent recorded in May.
The annual rate was last higher in November 2004, when it hit 3.5 per cent.
ONS said the monthly rise mainly reflected small jumps in tobacco and alcohol, and food product prices. These edged up 0.3 per cent and 0.2 per cent respectively.
The rise in the month to June was offset partly by a fall in petroleum product prices of 0.6 per cent. That was the first since December 2005.
Elsewhere, core output prices, on an unadjusted basis, rose 2.9 per cent in the year to June. That was up on the 2.4 per cent recorded in May.
The annual increase in the core rate, which excludes food, beverages, tobacco and petroleum, was the highest since November 2004's three per cent.
In seasonally adjusted terms, core output prices rose 0.3 per cent, in line with expectations.
Incomes Data Services said half of the 159 pay settlements over the three month-period were between 2.5 and 3.3 per cent.
But it said most of the settlements were reached before news of a marked pick up in inflation in May, which meant pay deals in the coming months could climb.
The Retail Price Index inflation measure, the benchmark for most pay deals, rose to three per cent in May, a year's high.
"With the inflation rate set to be at three per cent for the rest of the year, the median pay increase in the private sector may well rise to 3.3 or 3.5 per cent in coming months," said Sarah Miller, editor of the Incomes Data Services Pay Report.
The report may reignite a number or concerns among policymakers that the recent energy-price driven rise in inflation risks pushing up wage demands, although that does not appear to have been the case so far.
It showed some firms had already reached pay deals of well over three per cent, for example BAE Systems Submarines, with a settlement of 3.75 per cent, while the construction industry agreed a pay deal of 3.5 per cent.