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Economy in Brief

U.K. Producer Prices Up Sharply in July: Further Interest Rate Increase in September?
by Louise Curley August 9, 2004

Last Thursday, August 5th, British monetary authorities raised the base rate by 25 basis points, the fifth such increase since last November, bringing the rate to 4.75%. The release today of the producer price indexes for input and output prices suggests that tightening by the monetary authorities may not be over.

While the index of total output prices rose only 0.10% from June to July the index of core output prices, i.e., prices of all items excluding food, beverages, tobacco and petroleum, rose 0.39% in July, the biggest monthly increase since January 1996. Moreover, trends in input prices suggest further upward pressure on output prices.

The index of input prices rose even more, 0.41%, than the index of core output prices in July. In addition, the July figure for input prices does not reflect the recent jump in oil prices that got underway in early August. Input prices, which tend to be much more volatile than output prices. do, in time, become reflected in output prices.

UK Producer Prices (NSA)  2000 = 100 Jul 04 Jun 04 Jul 03 M/M % Y/Y %  2003 % 2002 %  2001%
Output Prices 103.7 103.6 101.2 0.10 2.47 1.50 0.04 -0.20
"Core"* 102.2 101.8 100.6 0.39 1.59 1.26 -0.08 -0.59
Input Prices 97.8 97.4 94.8 0.41 3.16 1.35 -4.45 -1.25
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