Pipeline inflation pressures still building

The last month has brought more evidence that pipeline price pressures are strengthening. Producers’ input and output prices rose at record rates in January. (See Chart of the Month.) And the jump in the oil price above $100 per barrel and the further drop in the pound suggest that price pressures have not yet peaked. The slowdown in activity that is well underway should ensure that producers and retailers absorb a large part of the rise in costs in their margins. But for now, growing inflation concerns are likely to mean that the MPC continues to cut interest rates only gradually.