New data shows factory gate prices fell at their fastest annual rate in almost eight years during June due to lower oil prices.
Output prices are now 1.2 per cent lower than a year ago – the biggest year-on-year fall since December 2001, the Office for National Statistics (ONS) said.
Despite petrol prices creeping up in recent weeks, oil is now at less than half the record 147 dollars a barrel seen last July as recession bears down on demand.
Petrol prices have fallen 20 per cent year on year, the biggest decline since ONS records began in 1992.
Factory gate prices dropped 0.2 per cent between May and June after a record three per cent fall in chemical prices and lower costs for manufactured products and scrap metal offset a four per cent rise in petrol prices.
Howard Archer, of IHS Global Insight, said: “Producer output prices were far weaker than expected, indicating that manufacturers remain under intense pressure to price competitively.”
Output prices slipped between May and June, but input costs rose 1.5 per cent. This was because crude oil costs rose at their fastest monthly rate in almost five years, despite overall prices being well below a year earlier.
Year-on-year input costs are 11 per cent below June last year, the biggest annual fall since 1997.
But so-called “core” output prices, which exclude volatile commodities such as food and petrol, also fell 0.8 per cent over the month and are just 0.1 per cent higher than a year earlier.
Experts will keep close tabs on the “core” rate, because base effects from sharply falling oil prices in the second half of 2008 are likely to push up annual factory gate price inflation.
Colin Ellis, of Daiwa Securities, said: “Any sign that deflationary pressures are broadening out will be a cause for concern for the Bank of England’s Monetary Policy Committee.”