The Producer Prices Index (PPI) is one of the oldest and most significant statutory economic surveys in the UK. PPIs are price indices for home sales of manufactured products and for materials and fuel purchased by the manufacturing industry.
Each month survey questionnaires are sent to approximately 5,000 businesses in the UK. Firms are selected from respondents to the Products of the European Community survey (PRODCOM).
Businesses receive a customised form which asks for price information for specific products manufactured by them. Companies pre-select a product that is representative of their overall sales in that sector; they then provide a current price for that product. The price quoted is known as the factory gate price. The survey provides around 6,750 price quotations from some 4,500 contributors.
Both input and output PPIs are produced. Output PPIs measure the change in price of goods sold to the UK market when they leave the factory gate. Input PPIs measure the change in price of materials and fuels bought by manufacturers that are used within the manufacturing process. Information is provided by the Department of Business, Enterprise and Regulatory Reform (BERR) for energy and construction prices and by the Department for Environment, Food and Rural Affairs (DEFRA) for prices of food inputs.
Data at disaggregated level are used to deflate current price data for the index of production, quarterly and monthly stocks inquiries, capital expenditure and exports. In industry PPIs are widely used to identify market trends, as a guide to market developments and as a benchmark for company performance. PPIs are also widely used by industry for the indexation of contracts.
PPIs are used by the Government, HM Treasury, the Bank of England, and external forecasters as an indicator of inflation in the manufacturing sector. The results are also used by the Government in monitoring and formulating economic policy.