UK inflationary pressures...

The UK Statistics Authority released the latest producer price data for March yesterday. It was not good news. The annual rate of increase in output prices is now up to 6.2% while the comparable figure for input prices is over 20%. How important are these figures? The short answer is very important. They are a crucial leading indicator of where consumer price inflation (CPI) heading in coming months. It is inevitable that this pressure will result in higher prices for retailers and then finally consumers. This does not mean that UK CPI inflation will be running at 6%+ but rather that it will remain nearer to 3% rather than the Government's target of 2%. This is only unlikely if a severe recession prevents retailers raising their prices due to the weakness of consumer demand. So as the Prime Minister (PM) spins his coin tonight it is heads for rising inflation and tails for a recession. This is not a good scenario for the PM as he promises to turn his full attention to the economy.