Fall in inflation could face setbacks

7th September 2012

Annual producer output inflation was 2.

2% in August, compared with 1.8% in July Annual producer input inflation was 1.4% in August, compared with -2.4% in July  Commenting on the producer price figures for August 2012, published today by the ONS, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: -The producer prices figures published today confirm our assessment that the much needed fall in inflation is likely to face setbacks. This is largely due to recent rises in oil and food prices seen in recent months. The annual rise in output prices though still modest has accelerated. In the case of input price inflation the recent upturn is more pronounced and unless reversed will eventually have adverse effects. -While we expect consumer price inflation to continue falling over the next few years, the decline will not be as rapid and as smooth as first seemed likely. This is concerning because in the face of tough fiscal austerity at home and difficult problems in the eurozone, falling inflation remains key to easing pressures on consumers and businesses, and in underpinning demand in the economy. -These concerns over inflation reinforce our view that the MPC should not use additional QE to limit falls in inflation below the 2% target. In recent years, UK inflation has consistently been above the 2% target and the temporary period of below-target inflation in 2013, if it indeed materializes, would benefit the economy and should not be resisted. The economic situation remains difficult and these latest figures reinforce the need for the government to give greater priority to polices that will create growth.