British factory gate inflation rose more than expected to a four-month high in January as raw material costs surged in a sign that higher crude oil prices are pushing their way through the supply chain.
The Office for National Statistics said yesterday output prices rose 0.4 per cent on the month, taking the annual rate of increase to 2.9 per cent from 2.4 per cent in December and compared with a forecast of 2.7 per cent.
That was the highest since September and mainly reflected dearer petrol and diesel following sharp price rises in crude oil.
The figures are likely to boost concern that inflationary pressures from energy costs have not abated completely and could still work their way through to the consumer, prompting the Bank of England to hold off cutting interest rates from 4.5 per cent.
"Overall, today's data provides evidence of increases in input price inflation partially feeding through into output prices," said Amit Kara, economist at UBS.
The pound recovered somewhat after the data, having hit a six-week low against the dollar moments before. Rate futures dipped briefly, but quickly recovered as traders like most analysts continued to look for at least one rate cut this year.
There was some comfort for those expecting lower borrowing costs from slower core output price inflation.
Output price inflation excluding the volatile items food, drink, tobacco and petrol products fell to 1.6 per cent from 1.7 per cent in December.
But that was countered by a bigger than expected rise in factories' raw material costs.
Input prices rose by 1.8 per cent in January on the month and by 15.4 per cent on the year. The annual pace was the second fastest since comparable records began in 1991 after a high of 18.3 per cent in December.
Within this, gas prices fell on the month but were still up more than 90 per cent on a year earlier. Electricity prices rose at their fastest annual rate since comparable records began in 1991 - up by 50.1 per cent.
Newspapers have reported household bills could rise by as much as 25 per cent in coming months, putting upward pressure on inflation but also risking dampening consumer spending.
Analysts said in the short-term such energy effects were likely to push consumer price inflation above the Bank of England's two per cent target. Data today is expected to show CPI at 2.1 per cent in January from two per cent in December.