Producer price inflation, UK: February 2019

Changes in the prices of goods bought and sold by UK manufacturers including price indices of materials and fuels purchased (input prices) and factory gate prices (output prices).

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This is an accredited national statistic.

Contact:
Email Martina Portanti

Release date:
20 March 2019

Next release:
17 April 2019

1. Main points

  • The headline rate of output inflation for goods leaving the factory gate was 2.2% on the year to February 2019, up from 2.1% in January 2019.

  • The growth rate of prices for materials and fuels used in the manufacturing process increased to 3.7% on the year to February 2019, up from 2.6% in January 2019.

  • All product groups provided upward contributions to output and input annual inflation.

  • Crude oil provided the largest upward contribution to the change in the annual rate of input inflation.

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2. Things you need to know about this release

We will be carrying out a public consultation during the first half of 2019 to collect users’ views on possible changes to the level of detail published in the Producer Price Indices (PPI), in particular the input series. Please email business.prices@ons.gov.uk with your contact details if you want to be informed about the launch of the consultation.

The factory gate price (output price) is the amount received by UK producers for the goods that they sell to the domestic market. It includes the margin that businesses make on goods, in addition to costs such as labour, raw materials and energy, as well as interest on loans, site or building maintenance, or rent.

The input price measures the price of materials and fuels bought by UK manufacturers for processing. It includes materials and fuels that are both imported or sourced within the domestic market. It is also not limited to materials used in the final product, but includes what is required by businesses in their normal day-to-day running, such as fuels.

The use of core input inflation removes the more volatile indices of food, tobacco, beverages and petrol from our statistics.

Index numbers shown in the main text of this bulletin are on a net sector basis. The index for any industry relates only to transactions between that industry and other industries; sales and purchases within industries are excluded.

Indices relate to average prices for a month. The full effect of a price change occurring part way through any month will only be reflected in the following month’s index.

All index numbers exclude Value Added Tax (VAT). The Soft Drinks Industry Levy, introduced in April 2018, is also excluded. Excise Duty (on cigarettes, manufactured tobacco, alcoholic liquor and petroleum products) is included, except where labelled otherwise.

Each Producer Price Index (PPI) has two unique identifiers: a 10-digit index number, which relates to the Standard Industrial Classification 2007: SIC 2007 code appropriate to the index, and a four-character alpha-numeric code (series ID), which can be used to find series when using the time series dataset for PPI.

Figures for the latest two months are provisional and the latest five months are subject to revisions in light of late and revised respondent data. Revisions to seasonal adjustment factors are re-estimated every month for the seasonally adjusted series. A routine seasonal adjustment review is normally conducted in the autumn each year.

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3. Producer price inflation summary

Figure 1 shows input and output Producer Price Indices (PPI) over the past 15 years. Input PPI is driven mostly by commodity prices, which tend to be more volatile over time compared with prices for finished goods (output PPI). Input PPI is also sensitive to exchange rate movements as roughly two-thirds of inputs into the UK manufacturing sector are imported.

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4. Annual rate of output inflation picks up for the first time since October 2018

The annual rate of inflation for goods leaving the factory gate (output prices) rose slightly by 0.1 percentage points to 2.2% in February 2019 (Table 1). This follows three consecutive months of slowing growth. The 12-month rate of output inflation has remained positive since July 2016.

Figure 2 shows contributions by product group to the monthly and annual rate of output inflation and Table 2 shows monthly and annual growth rates by product group.

Other manufactured products provided the largest upward contribution of 0.31 percentage points to the annual rate (Figure 2), due to price growth of 2.1% on the year to February 2019 (Table 2). This growth was driven mainly by prices for other non-metallic mineral products, which increased by 2.7% on the year to February 2019.

Tobacco and alcohol showed the second-largest upward contribution of 0.29 percentage points to the annual rate, with annual growth of 3.0% in February 2019.

The monthly rate of output inflation was 0.1%, with the largest upward contribution coming from computer, electrical and optical products (0.09 percentage points). Prices for this product group rose by 1.0% on the month in February 2019.

Figure 3 shows contributions to the change in the annual rate for factory gate prices (output prices).

Petroleum products and computer, electrical and optical provided the main upward contributions to the 0.1 percentage points increase in the rate between January 2019 and February 2019. The largest upward movement came from petroleum products, at 0.21 percentage points.

Chemicals and pharmaceuticals provided the largest downward contribution to the change in the rate, at 0.13 percentage points.

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5. Annual rate of input inflation picks up for the first time since September 2018

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) rose to 3.7% in February 2019, up 1.1 percentage points from January 2019 (Table 3). This follows four consecutive months of slowing growth. The 12-month rate of input inflation has remained positive since July 2016.

The one-month rate for materials and fuels was positive for the first time in four months, with price growth of 0.6% in February 2019 (Table 3).

The annual rate of inflation for imported materials and fuels was 2.7% in February 2019 (Table 4), up from 1.7% in January 2019. Imported materials and fuels represent roughly two-thirds of overall materials and fuels (input prices) in terms of index weight.

The sterling effective exchange rate index (ERI) rose 1.3% on the month to 78.8 in February 2019 (Table 4). This is the highest the index has been since May 2018. On the year, however, the ERI fell 0.3%, which is the third consecutive month that the annual rate has been negative (Bank of England).

Figure 4 shows contributions by product group to the monthly and annual rate of input inflation and Table 5 shows monthly and annual growth rates by product group.

The largest positive contribution to the annual rate in February 2019 came from fuel, which contributed 1.13 percentage points (Figure 4) and had annual price growth of 10.1% (Table 5). The positive contribution from fuel was driven mainly by prices for electricity production and distribution, which rose 10.6% on the year, although this was down from 10.8% in January 2019.

Imported metals provided the second-largest contribution to the annual rate (0.54 percentage points) with annual price growth of 6.7% in February 2019.

Crude oil prices were the main contributor to the positive monthly input inflation rate, with an upward contribution of 0.81 percentage points and price growth of 5.4%. This is the highest monthly growth for this product group since May 2018. In February 2019, world Brent prices were at an average of US $61 per barrel, up 8.0% on the month (World Bank). This increase in world Brent prices was only partially offset by the strengthening of the sterling exchange rate in February 2019, therefore driving the positive direction of the monthly input inflation rate.

Figure 5 shows contributions to the change in the annual rate of inflation for fuels and materials purchased by manufacturers (input prices).

There was a 1.1 percentage points increase in the annual rate for inputs between January 2019 and February 2019, with three product groups displaying upward contributions to the change in the rate. Crude oil provided the largest upward contribution of 1.61 percentage points, with imported metals and other home-produced materials making smaller positive contributions.

Imported chemicals provided the largest downward contribution to the change in the rate, at 0.30 percentage points.

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7. Quality and methodology

The Producer Price Index (PPI) Quality and Methodology Information report contains important information on:

  • the strengths and limitations of the data and how it compares with related data

  • uses and users of the data

  • how the output was created

  • the quality of the output including the accuracy of the data

If you would like more information about the reliability of the data, a PPI standard errors article was published on 18 May 2018. The tables present the calculated standard errors of the PPI during the period January 2017 to December 2017, for both month-on-month and 12-month growth.

Guidance on using indices in indexation clauses (PDF, 197KB) covers producer prices, services producer prices and consumer prices.

An up-to-date manual for the PPI, including the import and export index, is now available. PPI methods and guidance (PDF, 1.18MB) provides an outline of the methods used to produce the PPI as well as information about recent PPI developments.

Gross sector basis figures, which include intra-industry sales and purchases, are shown in PPI dataset Tables 4 and 6.

The detailed input indices of prices of materials and fuels purchased by industry (PPI dataset Table 6) do not include the Climate Change Levy (CCL). This is because each industry can, in practice, pay its own rate for the various forms of energy, depending on the various negotiated discounts and exemptions that apply.

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