At the moment factory gate inflation is higher than it has been in over three years, based on September’s figures, and economists are not in agreement as to what this means for next year’s projections. The ultimate cause for such a sharp increase in prices is said to be the cost of fuel and food.
According to the ONS, inflation on the producer end rose by 0.3pc during August and September which made the annual inflation rate rise to 6.3pc. The cost of raw materials to manufacturers is up for the month by 1.7pc which means that the annual rate of inflation for raw materials in manufacturing is up now to 17.5pc. At an inflation rate that high, economists are in a quandary over just how to forecast the coming year.
This, too, is adding new worries that the BoE’s main inflation measure may need to be adjusted and that the consumer price index will now rise well above the 5pc mark that they had predicted. As well, a former member of the monetary policy committee stated that he has concerns that industries are not inflating prices even though this is setting the stage for even greater economic perils.
Andrew Sentence is numbered among those economists who feel that rising interest rates now could help to assuage the expectation of higher interest later. He believes that there is still a good possibility that the current 5pc interest rate will eventually fall back to the 2pc expected for 2012. This is in direct line with what the BoE has been projecting all along.
Even so, producer gate inflation has economists widely divided as to the outlook for the coming year and with prices rising as they have been, it is looking more and more like 2pc is simply unrealistic. Growing numbers of economists are leaning towards a much higher rate of inflation for the coming year.
