Anyone looking for clues that inflationary pressures in the UK economy will ease in coming months would do well to avoid the CBI’s latest industrial trends survey today.

The survey, conducted on a quarterly basis by the employer’s organisation, indicates that manufacturers are not only facing big cost increases at present but are also looking to pass those onto customers in coming months.

The figures are pretty startling.

The CBI, which has been carrying out this survey since 1958, reports that average costs during the three months to January accelerated at their quickest pace since April 1980.

That was when western economies everywhere were grappling with the inflationary consequences of a surge in energy prices, triggered by the Iranian revolution the previous year that had brought Ayatollah Khomeini to power.

The CBI, which received responses from 236 companies, said the survey suggested that costs were “expected to grow at a similarly fast pace” during the next quarter.

It said these acute cost pressures had been brought about by “persistent global and domestic supply challenges”.

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Companies have been putting up prices both to customers in the UK and in export markets at their fastest pace since April 1980 and, again, domestic and export price inflation is expected to pick up further in the next quarter.

That means consumers can expect to see prices continuing to rise in coming months.

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Producer price inflation (PPI), which includes what we used to call factory gate inflation, is a so-called “leading indicator” – in other words, it points to the future direction of inflation.

That is in contrast to consumer price inflation (CPI) and retail price inflation (RPI) which are lagging indicators, telling observers what has happened, rather than what is coming.

PPI came in at an annual rate of 9.3% in December, albeit down from 9.4% in November, reflecting higher petrol and metals and machinery prices.

Rain Newton-Smith, the CBI’s chief economist, said the figures showed UK firms were facing intense cost pressures.

She added: “Against the backdrop of rising energy prices, which are adding to inflationary pressures, short-term action is needed from the UK government to find urgent solutions for firms that are struggling.

“Longer term, energy market reforms are required to build resilience against future energy price shocks and create markets for renewable technologies, assisting net zero ambitions.”

The survey was not all bad news.

It suggested that, despite a slight slowdown from December, manufacturing activity remains firm and grew in more than half of the sub-sectors tracked by the CBI, chiefly the food and drink sectors, while orders appear to be strong.

The CBI said that the proportion of firms questioned which mentioned orders or sales as being likely to limit output next quarter fell to its lowest since January 1974.

There appears, then, to be no shortage of demand.

The big problem that companies appear to have is in meeting that demand.

The survey revealed that the number of firms citing delivery dates as being a factor likely to limit export orders during the next quarter rose to its highest since October 1974.

This, again, was a period in which western economies were struggling to cope with soaring energy prices – as a result of the Yom Kippur war between Israel and a number other Middle Eastern countries, some of them members of the OPEC cartel of oil producing nations, the previous year.

By October 1974, transport costs were also surging after the then-chancellor, Denis Healey, decided to slap VAT on petrol and diesel sales in his budget of March that year.

The same month also saw widespread strike action by truck drivers across Scotland and the north of England – which helps explain why companies were struggling to complete orders at that time.

That is not the only eerie echo from the inflation-riddled 1970s and early 1980s present in today’s survey.

The CBI also reports widespread labour shortages, with the number of firms citing skilled labour as a factor likely to limit output next quarter rose to its highest level since October 1973, the month the Yom Kippur war began and problems in the UK’s public transport networks were preventing many people from reaching their workplace.

The latest survey said the proportion of firms citing labour shortages as a factor likely to limit investment in the next year was the second highest on record.

In response to this, firms are clearly responding by stepping up their investment in skills, with the CBI reporting that investment intentions for the next year are up in both plant and machinery and training and retraining.

Ms Newton-Smith added: “It’s good to see firms looking to invest more in training and retraining as labour shortages continue to bite.

“And planned increases in spending on plant and machinery is a welcome sign of much-needed strengthening in business investment.

“Further fiscal measures to get more firms investing will be needed to set the UK on a long-term path to sustainable growth.”

To sum up, companies are enjoying solid demand, but are suffering from higher costs and a shortage of skilled workers, while supply chain issues means they are struggling to fulfil orders and, when they are, they are putting up prices to cover their increased costs.

It all points to inflation remaining stronger, not weaker, in coming months – albeit not quite perhaps at the elevated levels that we saw in the 1970s and early 1980s.

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