LONDON, Oct 13 - Prices of goods leaving Britain's factories barely rose at all in September, official data showed on Monday, but the underlying picture was one of rising costs for manufacturers. The Office for National Statistics said non-seasonally adjusted output prices rose 0.1 percent on the month, slightly less than expected, to stand 1.5 percent higher than a year earlier. So-called "core" output prices, which exclude volatile elements auch as food and oil, also rose 0.1 percent on the month to stand 1.3 percent up year-on-year, the highest figure since April, although only up slightly from August's 1.2 percent. Input prices -- the cost of raw materials and fuel purchased by firms -- fell 1.2 percent on the month, the biggest fall since November last year. This was thanks to a 9.6 percent drop in crude oil prices in the month which dwarfed a rise in food prices caused by the heatwave across Europe.
Financial markets showed little reaction to the data which were broadly in line with expectations. The FTSE 100 share index remained around 4,330, up 19 on the day. The pound was steady at $1.659 and 70.63 pence to the euro. "There is little sign of any factory gate inflation pressure. The number is benign and that's caused primarily by a drop in oil prices last month. On balance it suggests there is little to worry about on the inflation front," said Adam Chester, chief economist at Halifax bank.
UNDERLYING COSTS ON THE RISE
But the data also showed that core input prices rose 0.2 percent on the year last month, the first positive number since June 2001. This was caused by price rises in several sectors, mainly non-ferrous metals, paper and pulp and imported parts and equipment. This means that with crude oil prices up again so far in October, firms could soon be suffering increases in costs which will squeeze their margins further as they have so little pricing power due to intense competition. Indeed, the price of international benchmark Brent blend on Monday hit $31 a barrel on the futures exchanges, the highest level since the Iraq war. The producer price series has been rebased to 2000 from 1995. This has had the effect of lowering the output price series by an annual average of 0.5-0.6 percent, the ONS said. The downward revisions resulted from changes to computers, petrol, tobacco and radio, television and communication equipment indices. For input prices, the changes are more significant. The past two years have been revised down by about one percentage point to -1.1 percent for 2001 and -4.4 percent for last year.//