British factory gate inflation rose more than expected to its fastest annual rate in nine months in June, boosting expectations of higher interest rates in the months ahead.
The Office for National Statistics said that producer output prices rose 3.3% on the year, the fastest rate since last September, despite a monthly fall in petroleum product prices. Crude oil prices have since hit a record high.
Core output prices, which exclude food, drink, tobacco and petrol, were up 2.9% - the strongest rate in 18 months, raising concern that strong global demand is enabling firms to raise prices and thus boosting inflationary pressures.
The Bank of England left interest rates unchanged at 4.5% for the 11th month running last week and while policymakers appear in no hurry to move borrowing costs yet, many economists expect a hike in the months ahead.
Scrap metal was one of the biggest drivers of factory gate prices in June thanks to burgeoning demand from countries like Turkey and China. The ONS said recovered secondary raw materials prices rose by 56.8% on the year - the fastest rate since comparable records began in 1991.
Input prices, however, were weaker than expected in June. They fell by 0.2% on the month, bringing the annual rate of increase down to 11% from 13.7% in May - the weakest since October 2005. The monthly fall was driven by lower gas and oil prices. Economists said the fall may be temporary, as oil prices had risen to new highs earlier this month.
