Buyers forced to swallow price rises from suppliers

21 January 2011 sourced SupplyManagment.com By Lindsay Clark

Manufacturers will continue to pass on the rising cost of raw materials to buyers, business research has found.A survey by the Confederation of British Industry (CBI) showed there are a growing number of firms increasing prices to purchasers against a backdrop of increasing production and demand.

The study of 394 manufacturers in the UK found 32 per cent had seen output grow over the past three months, while 16 per cent said that it had fallen, giving a balance of plus 16 per cent. This was driven primarily by growth in export orders, at plus 13 per cent, with domestic demand rising more modestly at plus 9 per cent.

Manufacturers have raised output prices markedly during the last quarter, the January Quarterly Industrial Trends Survey said. While domestic prices rose at plus 13 per cent of firms, exports were plus 14 per cent. Both the figures represent the biggest difference between firms since October 2008. Price increases are expected to accelerate sharply over the next three months. A balance of plus 31 per cent of firms expect domestic prices to rise while plus 34 per cent see export prices increasing. The number of firms expecting to increase export prices is the highest since January 1995.
The figures support evidence the increasing costs of raw materials is being passed down through the supply chain.
Ian McCafferty, CBI chief economic adviser, said: “Production has been boosted this quarter by a strengthening in both domestic and overseas demand and, over the next three months, companies expect further growth, driven by another rise in export orders.
“But manufacturers have come under intense pressure to pass on rising costs: they have increased prices markedly in this quarter, and expect to raise them at an even faster pace over the next three months. This will drive further inflationary pressure in the wider economy.”