Factory gate prices to fall with inflation

The latest figures show that the average British household will be less squeezed as inflation eases pressure on the wallet.

by Michael Northcott
Last Updated: 19 Aug 2013

British manufacturers are enjoying lower input prices (the cost of their raw materials), meaning the price of goods in the UK is falling, according to the latest data from the Office for National Statistics (ONS). The average input price fell 2.5% in May compared with April, the largest dip since the end of 2008.

The figures are great news for the British household, where tight purse strings are already feeling eased pressure thanks to falling inflation. Inflation sits currently at 3%, which is within the zone where the governor of the Bank of England, Mervyn King, is not required to explain himself to the chancellor, George Osborne. It’s still much higher than the government’s target 2%, but progress is being made.

Output prices (what the factories actually charge), dropped 0.2% on the previous month. So, whilst the drop is not huge, it is nonetheless welcome, and is likely to feed through to the consumer prices index (a standard measure of inflation), in the next few months. 

Furthermore, the price of oil is falling as markets anticipate a drop in demand from the US and China. The cost of the commodity has already dropped 16% this year on the New York mercantile exchange, and hit $82.58 a barrel today.

Better times for the household consumer, bad times if you’ve got money in oil. Prices coming down can only be a good thing for the economy however, and with inflation easing too, people may feel confident to start spending a little more, and push us out of this double-dip recession malarkey…

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