1. Main points

  • The headline rate of inflation for goods leaving the factory gate (output prices) rose 2.8% on the year to January 2018, down from 3.3% in December 2017.

  • Prices for materials and fuels (input prices) rose 4.7% on the year to January 2018, down from 5.4% in December 2017.

  • All industries provided upward contributions to output annual inflation; the largest contribution was made by food products.

  • Prices of imported materials and fuels increased 3.5% on the year to January 2018, slowing from 5.2% in December 2017 and the lowest the rate has been since June 2016.

  • From April 2018, publication of these figures will move from Tuesday to Wednesday; the new release dates are available.

Back to table of contents

2. Things you need to know about this release

On 15 June 2017 the National Statistician announced that routine pre-release access to Office for National Statistics (ONS) statistics would end from 1 July 2017. Following this, we have considered the dates of our publications to ensure that they continue to meet user needs. From April 2018, the prices theme day, which encompasses consumer prices, business prices and house prices, will move from a Tuesday to a Wednesday. Alongside this, labour market theme day will move from a Wednesday to a Tuesday. The new release dates and further explanation of the reasons for these changes are available in a separate article.

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 price values.

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). 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 code appropriate to the index and a four-character alpha-numeric code, which can be used to find series when using the time series dataset for PPI. Every five years, producer price indices are rebased and weights updated to reflect industry changes.

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 and, for the seasonally adjusted series, revisions to seasonal adjustment factors are re-estimated every month. A routine seasonal adjustment review is normally conducted in the autumn each year.

Back to table of contents

3. Producer price inflation summary

Figure 1 shows input and output Producer Price Indices (PPI) across 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. Input PPI is also sensitive to exchange rate movements as roughly two-thirds of inputs into the UK manufacturing sector are imported.

Back to table of contents

4. Annual inflation rate for materials and fuels bought falls to its lowest value for 18 months

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) in January 2018 was 4.7%, down from 5.4% in December 2017 and the lowest it has been since July 2016.

The one-month rate for materials and fuels rose 0.7% in January 2018 (Table 3), which is up 0.1 percentage points from 0.6% in December 2017. On the month, inputs of crude oil had the highest rate of growth at 4.9%, increasing from 1.7% in December 2017.

The input Producer Price Index (PPI) value increased to 113.1 in January 2018, while the annual rate slowed to 4.7% in the same month, due largely to a base year effect of higher monthly growth and high input inflation in January 2017.

The annual rate of inflation for imported materials and fuels was 3.5% in January 2018 (Table 2), down 1.7 percentage points from December 2017 and the lowest it has been since June 2016. Imported materials and fuels have shown positive annual inflation for 20 consecutive months, although the rate of growth has been slowing down after the January 2017 peak of 20.2%. 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 to 79.0 in January 2018. On the year, the ERI was up 2.6% in January 2018 and was the fourth consecutive month where the ERI has shown positive growth. This may be helping to slow the rate of inflation on imported materials, making imports of raw materials less expensive.

Table 3 shows monthly and annual growth rates for input prices by industry and Figure 2 shows contributions by those industries to the monthly and annual rate of input price inflation.

The largest upward contribution to the annual rate in January 2018 came from crude oil, which contributed 2.19 percentage points (Figure 2) and had annual price growth of 13.5% (Table 3), up from 12.8% last month. The upward contribution from crude oil was driven mainly by imported crude petroleum and natural gas, which rose by 13.0% on the year.

Home food materials and imported chemicals provided the second- and third-largest contributions to the annual rate, with 1.11 and 0.65 percentage points respectively. Prices for home food materials rose 7.9% on the year, while prices for imported chemicals rose 4.8%.

Crude oil prices also showed the highest monthly growth at 4.9% and provided the largest upward contribution to the monthly rate at 0.76 percentage points.

Figure 3 shows contributions to the change in the annual rate of inflation for fuels and materials purchased by manufacturers (input prices).

There was a 0.7 percentage points drop in the annual rate for inputs between December 2017 and January 2018, with only three product groups; crude oil, home food materials and fuel displaying upward contributions to the change in the rate. Crude oil provided the largest upward contribution of 0.15 percentage points. Other home-produced materials made no contribution either way, while the remaining five product categories all made negative contributions. Other imported parts and equipment had the largest downward contribution of 0.48 percentage points.

Back to table of contents

5. Eight industries show a negative contribution to the change in the annual rate of output inflation

The annual rate of inflation for goods leaving the factory gate (output prices) fell by 0.5 percentage points to 2.8% in January 2018 (Table 4). This continues the positive annual inflation that began in July 2016.

Food products displayed the highest annual growth in January 2018 at 5.4% (Table 5), falling from 6.4% in December 2017, which had been the highest growth in this sector since December 2011. On the month, food product prices decreased by 0.3%. This is only the second time in 19 months when the one-month rate of output inflation has become negative for this product group.

Table 5 shows monthly and annual growth rates for output prices by industry and Figure 4 shows contributions by those industries to the monthly and annual rate of inflation at the factory gate.

Food products provided the largest upward contribution of 0.79 percentage points to the annual rate (Figure 4) driven by price growth of 5.4% on the year to January 2018 (Table 5). Growth was driven mostly by prices for dairy products, which rose 23.4% on the year, down from last month but continuing a sequence of 16 months of upward inflation.

Chemical and pharmaceutical products, and tobacco and alcohol show the second- and third-largest upward contributions to the annual rate, with 0.32 and 0.29 percentage points respectively. Chemical and pharmaceutical products increased 4.5% on the year, while prices for tobacco and alcohol grew by 3.2%.

Petroleum products provided the largest upward contribution to the monthly rate, up 0.06 percentage points.

Figure 5 shows contributions to the change in the annual rate for factory gate prices (output prices).

The 0.5 percentage points drop in the annual rate between December 2017 and January 2018 was a result of downward contributions from eight industries; with only two, paper and printing, and chemicals and pharmaceuticals making positive contributions. The largest downward movement of 0.16 percentage points came from food products, while the largest upward contribution of 0.03 percentage points came from paper and printing.

Back to table of contents

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 20 March 2017. The article presented the calculated standard errors of the PPI during the period January 2016 to December 2016, 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.

Back to table of contents