Manufacturer's Prices in Sharpest Fall in 40 Years
Global Deflation Continues
Manufacturers' prices have seen their sharpest falls for at least 40 years because of competitive pressures and falling raw material prices.
The price of finished goods - excluding volatile products such as food, drink, tobacco and petroleum - fell 0.5 per cent in the year to November, the biggest fall since records began in 1958, according to figures released yesterday.
Economists said faltering domestic demand was forcing retailers as well as manufacturers to run down stocks of unsold goods, a trend that was likely to continue, leading to further price falls.
A sustained period of deflation in manufacturing could severely erode producers' margins. Until now, weak commodity prices and the effects of a strong pound on the value of imported raw materials, while contributing to a fall in output prices, have also provided some relief for UK manufacturers by pushing production costs lower.
The Office for National Statistics said the price of all goods - including volatile items - leaving the factory gate for the domestic market rose 0.1 per cent in November compared with 12 months earlier, the same rate of annual growth as in October and the lowest since 1960.
Prices for office machinery, computers, TVs and radios have been falling steeply, reflecting increased competition from east Asian exporters.
But textiles, leather and wood-based products, feeding markets for clothing, shoes and household furniture, have also declined sharply.
John Redwood, shadow trade and industry secretary, said the figures were a warning that the problems in manufacturing were likely to intensify.
"It shows that the squeeze on manufacturing is getting worse. We all know that wages are still going up and that the pound continues to put pressure on exporters, so those companies that are managing to stay in business will see their margins eroded further."
The Treasury countered that falling raw material costs were "a significant part of the overall picture". Stripping out the more volatile components, input prices fell 4.6 per cent in the year to November.
The Engineering Employers' Federation said confirmation of weak inflationary pressures may see the Bank of England's monetary policy committee cut interest rates further.
"Confidence has been eroded to the point where capital spending has been reined back," said Alan Armitage, chief economist at the EEF. "Companies are pulling their horns in for tough times."
The federation's survey of wage inflation in the engineering sector, published today, will show that increases in pay settlements have begun to slow. Strong wage inflation has been cited as a reason against monetary easing.
Michael Hume, economist at Lehman Brothers, said lower factory goods prices would help drive inflationary pressures out of the economy. Official data today are expected to show underlying inflation hitting the government's targeted annual growth rate of 2.5 per cent for the fourth month in succession.
The Financial Times, Dec. 15, 1998 |
