Producer price inflation, UK: August 2021

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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Contact:
Email Emelia D'Silva-Parker

Release date:
15 September 2021

Next release:
20 October 2021

1. Main points

  • The headline rate of output prices showed positive growth of 5.9% on the year to August 2021, up from 5.1% in July 2021.

  • The headline rate of input prices showed positive growth of 11.0% on the year to August 2021, up from 10.4% in July 2021.

  • Other manufactured products and other produced materials provided the largest upward contribution to the change in the annual rate of output and input inflation respectively.

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2. Analysis

On the month, the rate of output inflation was 0.7% in August 2021, down from 0.8% in July 2021 (Table 1).

Transport equipment provided the largest upward contribution of 2.07 percentage points to the annual rate (Figure 2), but had negative annual price growth of 1.9% in August 2021 (Table 2).

Despite showing negative annual growth, transport equipment provided an upward contribution to the annual rate. This is because of the weight changes implemented as part of the move to annual chain-linking. Further information on how these contributions are calculated can be found within Section 5 below.

The annual rate of output inflation increased by 0.8 percentage points from 5.1% in July 2021 to 5.9% in August 2021; this is the highest the annual rate of output inflation has been since November 2011. Petroleum products had the highest annual growth rate of any component of output prices in August 2021, at 50.4% (Table 2), and contributed 0.13 percentage points to the change in the rate (Figure 3).

A further six product groups displayed upward contributions to the change in the rate, with other manufactured products providing the largest, at 0.36 percentage points (Figure 3). Annual growth rates for this product group were being driven by products of wood, cork, straw, and plaiting materials for domestic market.

On the month, the rate of input inflation was 0.4% in August 2021, down from 1.3% in July 2021 (Table 3).

The annual rate of imported inputs was 4.6% in August 2021 (Table 4), unchanged from July 2021.

The largest upward contribution to the annual input inflation rate came from metals and non-metallic minerals, which contributed 4.55 percentage points (Figure 4), and had positive annual price growth of 21.1% in August 2021 (Table 5). This was mainly driven by basic iron and steel and of ferro-alloys for domestic market.

Crude oil had the highest annual growth rate of any component of input prices in August 2021, at 49.6% (Table 5), but had a downward contribution to the change in the annual rate as it fell from 54.5% in July 2021 (Figure 5). This was driven by a base effect as there was a negative price movement of 3.8% on the month.

The annual input inflation rate increased by 0.6 percentage points from 10.4% in July 2021 to 11.0% in August 2021. Of the 10 product groups, six displayed upward contributions to the change in the rate, with other produced materials providing the largest, at 0.24 percentage points (Figure 5). Annual growth rates for this product group were being driven by wood, sawn and planed for domestic market.

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3. Producer price inflation data

Producer price inflation time series
Dataset | Released 15 September 2021
A comprehensive selection of data on input and output indices. Contains producer price indices of materials and fuels purchased and output of manufacturing industry by broad sector.

Output and input producer price inflation: contributions to the 12-month rates
Dataset | Released 15 September 2021
Contributions to the 12-month rates of input and output producer price inflation by component and overall rates.

Producer price inflation
Dataset MM22 | Released 15 September 2021
UK price movement data at all manufacturing, aggregated industry and product group level. Data supplied from individual manufacturers, importers and exporters. Monthly, quarterly and annual data.

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4. Glossary

Weight

This is the importance of the price of interest relative to other prices collected. With annual chain linking, this is updated every year using business turnover data.

Index value

Price level in a specific basket of goods. Annual growth rate The annual inflation rate.

Link factor

A smoothing factor applied to create a continuous series following a weights change.

Contribution

A measure of influence the index has on the overall growth rate. This depends on both the magnitude of the weight and the inflation rate. A positive contribution is an index that is driving a change in the annual growth rate value. Where the contribution is positive but the growth is negative, this indicates that the index is reducing the annual growth rate (for example, the growth rate would be higher if this index had a lower weight).

Producer price inflation

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).

Output prices

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.

Input prices

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 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.

Services producer price inflation

Quarterly estimates monitoring the changes in prices charged for services provided to UK-based customers for a range of industries.

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5. Measuring the data

Producer Price Inflation (PPI) uses contributions to identify how indices influence the overall inflation rate. This section gives additional information on the calculation and how to interpret it.

Example scenarios

The following gives examples of how weight and inflation rate changes most commonly affect the contribution. In PPI, the weights usually have greater influence on the contribution as these tend to show greater change than the annual inflation rate.

  • Decrease in weight and in inflation rate – contribution is negative

  • Decrease in weight, increase in inflation rate – contribution is usually negative

  • No change in weight or inflation rate – no change

  • No change in weight, increase in inflation rate – no change

  • Increase in weight, decrease in inflation rate – contribution is usually positive

  • Increase in weight, no change in inflation rate – contribution is positive

  • Increase in weight, increase in inflation rate – contribution is positive

Contributions are calculated using the following formula:

Quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Producer Price Index (PPI) Quality and Methodology Information report and the Services Producer Price Indices (SPPI) Quality and Methodology information report.

Other useful documentation for the Producer Price Index (PPI) and the Services Producer Price Index (SPPI) are:

  1. Producer price indices methods changes

  2. Chain-linking in Business prices

  3. Producer price weight changes

  4. Services producer price weight changes

  5. Guidance on using indices in indexation clauses (PDF, 197KB)

  6. PPI methods and guidance (PDF 1.14MB)

  7. SPPI user guidance and methodology article

  8. PPI standard errors article and SPPI standard errors article

Sterling effective exchange rate

The sterling effective exchange rate measures changes in the strength of sterling relative to basket of other currencies. The sterling effective exchange rate is only indicative of the rates applied to producer prices. This is because the sterling effective exchange rate is a trade weighted index that represents all UK trade, whereas producer prices reflect transaction in the manufacture sector.

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6. Strengths and limitations

Strengths

  • These data provide users with valuable insight into the changes in the process of goods and services bought and sold by UK manufacturers.

  • Our data is very comprehensive, covering many products at a much greater level of detail than other surveys.

Limitations

  • Some products are produced by only a small number of manufacturers, meaning that there may not be enough manufacturers for a detailed and robust analysis and the sector may be volatile, requiring some estimation.

  • The data can be revised for 12 months.

  • The data for the latest two months of the Producer Price Index (PPI) and two quarters of the Services Producer Price Index (SPPI) are provisional.

Coronavirus in August 2021

Response rates for the domestic Producer Price Index (PPI) and Export Price Index (EPI) show an increase between July 2021 and August 2021, whereas the response rates for the Import Price Index (IPI) show a decrease between July 2021 and August 2021 (Table 6).

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Contact details for this Statistical bulletin

Emelia D'Silva-Parker
business.prices@ons.gov.uk
Telephone: +44 1633 456907