The most important, and potentially most worrying, development over the last month has been the apparent strengthening of firms’ pricing power towards the start of the inflation pipeline. Core output producer price inflation rose from 2.5% to 2.7% in February. And the rise in the CBI’s manufacturers’ price expectations balance to a 12 year high in March suggests that firms are more confident in their ability to make price increases stick. This now appears to be the MPC’s chief concern and suggests that another interest rate hike is likely, most probably in May.
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