The plummeting pound has sharply increased costs for British factories since the June 23 vote to leave the European Union, with new data showing prices of oil, metals and other supplies needed by manufacturers increasing for the first time in nearly three years.
The Office for National Statistics said on Tuesday that input prices rose 4.3% in July, the first annual increase since September 2013. There were double-digit rises in the cost of some goods, with the price of imported food up 10.2% and imported metals 12.4% higher, news outlets reported.
Rising fuel prices helped to push the UK's inflation rate higher last month, according to official figures. The annual inflation rate as measured by the consumer prices index rose to 0.6% in July from 0.5% in June, the ONS said.
The retail prices index measure of inflation rose to 1.9% in July from 1.6% in June.
July's RPI inflation rate sets the cap for how much regulated rail fares in England, Scotland and Wales can rise by next year.
Separate figures from the ONS suggested that the fall in the value of the pound since the UK's referendum vote had increased the cost of imports for manufacturers.
In addition, the prices of goods leaving the factory gate were 0.3% higher than a year earlier, the first annual increase since June 2014.
Sterling to Blame
"There is no obvious impact on today's consumer prices figures following the EU referendum result, though the producer prices index suggests the fall in the exchange rate is beginning to push up import price faced by manufacturers," said Mike Prestwood, head of prices at the ONS.
However, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the fall in sterling was "entirely responsible" for the rise in CPI inflation to the highest rate since November 2014.
Against the dollar, the pound is some 13% below its level in the run-up to the referendum and 10% lower against the euro.
"Sterling's depreciation ensured that pump prices rose by 0.7% month-to-month even though dollar oil prices declined," he said.
"As a result, we continue to think that CPI inflation will hit 3% in the second half of 2017."
Workers' Pay
As prices for companies rise, the pressure to keep down costs may be bad for wages, according to Howard Archer, chief UK and European economist at IHS Global Insight.
He said: "Companies may well look to clamp down on workers' pay as they strive to save costs in a more difficult environment and as imported input prices are lifted by the weakened pound.
"Meanwhile, a likely softening labor market and reduced consumer confidence will dilute workers' ability and willingness to push for higher pay awards."
And even if inflation looks set to rise above the government's target of 2%, he believes the Bank of England is still likely to lower interest rates further to stimulate growth.
Economists said the new data meant that while inflation has yet to trickle down to most everyday consumers, shoppers and businesses are likely to see price increases throughout the year.
Sam Hill, economist at RBC Capital Markets, said the main message was that inflation “is on an upward trajectory”; Suren Thiru, head of economics at the British Chambers of Commerce, said he expected the new data to “be the start of a prolonged period of increasing prices”.
Increased Costs for Companies
The new data also raised new questions about whether companies can boost their cheaper exports by enough to compensate for the increased costs.
Higher costs for manufacturers will translate into a rising cost of living for consumers in the months ahead, said Scott Corfe, director of the Center for Economics and Business Research.
"The sharp decline in the value of the pound since the Brexit referendum will translate into higher prices for imported goods over the coming months, pushing inflation to above 2.5% in the first half of 2017," he said in a written analysis of the figures.
Increased inflation, combined with stagnant pay growth, mean workers are likely to feel the pain.
"The UK's strongly consumer-driven economic recovery is about to grind to a halt," he said.
