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Slow rise in raw material costs surprise experts

Manufacturing raw material costs rose at a slower rate than expected last month despite surging oil prices, official data showed today.
The Office for National Statistics said input prices increased by 0.2 per cent between July and August following an upwardly-revised 2.5 per cent gain in July - easing fears of a build-up in inflationary pressures.

Some experts had predicted the figures would show raw material and fuel costs rising at their fastest rate in more than 20 years.

Although manufacturers were hit with a 8.5 per cent rise in the cost of crude oil over the month, this was partially offset by falls in the price of equipment and most commodities.

Today's figures showed that factory gate prices - the amount charged by manufacturers for their goods - rose by 0.3 per cent on the month, less than the 0.4 per cent expected.

HSBC economist John Butler said the figures should reduce concerns about an inflation problem in the UK.

He said: 'Overall, this is an important set of data. It shows that the oil price shock is coming through but falls in other costs imply that inflationary pressures remain well contained.'

Dominic Walley, managing economist at the Centre for Economics and Business Research, said the inflationary pressure being built up by high oil prices was expected and factored into calculations by the Bank of England.

He said: 'The markets will not interpret this as changing the future trajectory of interest rates and we expect them to be largely unaffected.'

The ONS is due to release inflation data for the month of August tomorrow.

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