Producer price inflation, UK: December 2021 including services, October to December 2021

Changes in the prices of goods bought and sold by UK manufacturers, including price indices of materials and fuels purchased and factory gate prices. Quarterly estimates monitoring the changes in prices for services provided to UK-based customers.

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Contact:
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Release date:
19 January 2022

Next release:
16 February 2022

1. Main points

  • The headline rate of output prices showed positive growth of 9.3% on the year to December 2021, down from 9.4% in November 2021.

  • The headline rate of input prices showed positive growth of 13.5% on the year to December 2021, down from 15.2% in November 2021.

  • Petroleum products, and metals and non-metallic mineral products provided the largest upward contributions to the annual rates of output and input inflation respectively.

  • The annual rate for the Services Producer Price Index (SPPI) showed positive growth of 3.6% in Quarter 4 (Oct to Dec) 2021, up from 3.4% in Quarter 3 (July to Sept) 2021.

  • Transportation and storage services provided the largest upward contribution to the annual rate.

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2. Analysis

On the month, the rate of output inflation was 0.3% in December 2021, down from 1.0% in November 2021 (Table 1).

Of the 10 product groups, nine showed positive annual growth in December 2021. Petroleum provided the largest upward contribution of 2.24 percentage points to the annual rate (Figure 2) and had annual price growth of 68.1% in December 2021 (Table 2).

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The annual rate of output inflation decreased by 0.1 percentage points from 9.4% in November 2021 to 9.3% in December 2021; this is the first time the annual rate of output inflation has slowed since May 2020.

Of the 10 product groups, four showed downward contributions to the change in the rate, with transport equipment providing the largest at negative 1.84 percentage points (Figure 3).

Despite providing the largest downward contribution to the change in the annual rate, the annual rate for transport equipment increased by 0.1 percentage points from 1.9% in November 2021 to 2.0% in December 2021 (Table 2). The downward contribution is driven by weight changes implemented as part of the move to annual chain-linking. More information is available in our Chain-linking in business prices article. You can find out more about how these rates are calculated in Section 5.

On the month, the rate of input inflation was negative 0.2% in December 2021, down from 1.5% in November 2021 (Table 3); this is the first time the monthly rate has been negative since August 2020, and was mainly driven by crude oil and fuel with negative monthly rates of 7.9% and 11.2% respectively (Table 5).

The annual rate of imported inputs was 7.0% in December 2021 (Table 4), down from 7.6% in November 2021.

The largest upward contribution to the annual input inflation rate came from metals and non-metallic minerals, which contributed 4.23 percentage points (Figure 4) and had positive annual price growth of 20.9% in December 2021 (Table 5). This was mainly driven by basic iron and steel, and of ferro-alloys for domestic market.

The annual input inflation rate decreased by 1.7 percentage points from 15.2% in November 2021 to 13.5% in December 2021.

Of the 10 product groups, five showed downward contributions to the change in the rate; crude oil showed the largest downward contribution to the change in the rate at 0.98 percentage points (Figure 5). Crude oil saw a fall of 7.9% between November and December 2021, compared with an increase of 10.1% between the same period in 2020. This base effect is driving the downward contribution, which saw the annual rate for crude oil fall by 28.7 percentage points from 76.0% in November 2021 to 47.3% in December 2021 (Table 5). Annual growth rates for this product group were being driven by crude oil for domestic market.

The annual rate of inflation for the Services Producer Price Index (SPPI) was 3.6% in Quarter 4 (Oct to Dec) 2021, up from 3.4% in Quarter 3 (July to Sept) 2021 (Figure 6). This is the highest the rate has been since records began. 

The quarter-on-quarter growth of services sold by UK companies was 0.9% in Quarter 4 2021, down from 1.1% in Quarter 3 (July to Sept) 2021 (Table 6).

The largest upward contribution to the annual rate came from transportation and storage services at 1.45 percentage points (Figure 7), with an annual price increase of 8.0% (Table 7).

Transportation and storage services also provided the largest upward contribution to the quarterly rate at 0.63 percentage points.

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3. Producer price inflation data

Producer price inflation time series
Dataset | Released 19 January 2022
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 19 January 2022
Contributions to the 12-month rates of input and output producer price inflation by component and overall rates.

Producer price inflation
Dataset MM22 | Released 19 January 2022
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 (QMI) report and the Services Producer Price Indices (SPPI) QMI report.

Other useful documentation for the PPI and the 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

  9. 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 (COVID-19) in December 2021

Response rates for the domestic PPI and Export Price Index (EPI) show a decrease between November 2021 and December 2021, whereas the response rates for the Import Price Index (IPI) show an increase between November 2021 and December 2021 (Table 8). The response rate for SPPI shows a decrease between Quarter 3 (July to Sept) 2021 and Quarter 4 (Oct to Dec) 2021 (Table 9).

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Contact details for this Statistical bulletin

Chris Jenkins
business.prices@ons.gov.uk
Telephone: +44 1633 456907