Inflation Increases UK Manufacturing Costs

Rob Mackrill - Mon 14 Jan, 2008

It looks like the Bank made the right call on interest rates last week Inflation is bubbling through from the factory gate. The Producer Price Index of factory goods is, in the words of one analyst pretty nasty this time around. They hit a 16 year high when prices rose 5% in December, up from 4.5% the month before. The rises were led by oil and fuel related costs, Bloomberg reports. Over the year the cost of filling up a Jumbo jet rose 11.6% and other gasoline product costs are up 20.5%...

It looks like the Bank made the right call on interest rates last week…

Inflation is bubbling through from the factory gate. The Producer Price Index of factory goods is, in the words of one analyst “pretty nasty” this time around.

They hit a 16 year high when prices rose 5% in December, up from 4.5% the month before. The rises were led by oil and fuel related costs, Bloomberg reports. Over the year the cost of filling up a Jumbo jet rose 11.6% and other gasoline product costs are up 20.5%.

This will do little to dislodge the negative sentiment amongst fund managers. They have been unnerved by the start to the year, says Jonathan Davis of Independent Investor and it remains tough to read. The stock market is proving ‘one of the most fascinating and difficult to call that I recall...opinion remains as deeply polarised as I can remember,’ he says adding Fidelity’s Anthony Bolton is talking about a 6-9 month bear market and even Ken Fisher, bullish since the start of the year, appears to be having second thoughts:

"It is either a second correction because the first one was too brief and didn't freak enough folks out, or there is something bad down the pike that I can't see and isn't the stuff everyone is fomenting about. I'm rather inclined toward the former view for now and simply see it as completing a full freak out factor before a higher market. But maybe there is something I'm not seeing. It wouldn't be the first time".

Mr Davis admits to shifting his own portfolio into selected emerging markets, soft commodities and...gold. He’ll be satisfied then to see gold has now stormed past $900 bucks at almost $910 at time of writing, with its poor relation silver hitting a 27 year high and trading at $16.50.

Darren Heathcote, of Investec Australia, tells the Times: 

“We are in an uncharted territory, really. We have a weaker dollar and that’s encouraged people to buy gold.” 

...as has the Daily Reckoning from time to time.

*** House prices may be flat or sagging but commercial property prices are positively tumbling. An IPD survey due out this week expects to reveal commercial property prices fell 10% last year with another 10% fall anticipated in the first half of 2008.

But while the mood is black, the now bombed-out sector has started to attract bottom-fishing value investors. The Government of Singapore Investment Corporation picked up 3% of British Land recently. The company reported net asset value of £16.82 per share to the end of September and the shares have been selling for under £9. 

PS. This article is from The Daily Reckoning. With over 500,000 readers every day The Daily Reckoning has become essential reading for anyone who’s interested in their money. If you think you'd enjoy witty, irreverent and often hilarious commentary on economics and investment - for FREE - then sign up today.