At last, the hint of good news we have been waiting for. Pipeline inflationary pressures seem to be seeing sharp falls. This is good news; first, because it will make it easier for central banks to justify rate cuts, but also because the falls may prove to be so significant that they may even go negative, thus helping consumer affordability, and, for companies, driving up profits.
According to the latest data from the ONS, input prices, that’s what producers have to pay for the products they buy, fell by 1.2 per cent in September. It is the third month in a row which has seen monthly falls. On an annual basis, input price inflation is still high – 2.4 per cent – but then again it has fallen enormously, from 3.4 per cent two months ago.
Even more encouragingly, output prices, that’s what producers charge their customers, also fell in the month – down 0.1 per cent.
The annual rate of output price inflation is now down to 5.4 per cent, from 6.3 per cent two months earlier.
For the last two years or so, producers have been swallowing most of their input prices, thus reducing the overall inflationary effect, but at the same time eating into profits. As the trend goes into reverse, the boot is likely to be on the other foot, and output price drops will lag behind input price falls, as companies try to rebuild margins.
Even so, it seems output inflation is set to enter a period of sharp falls – don’t be surprised if the annual rate goes negative next year.
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