Producer price inflation, UK: October 2022

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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25 November 2022 07:00

We have identified and corrected an error in the Office for National Statistics (ONS) Producer Price Indices (PPI) affecting data from January to October 2022.

The error was because of diesel fuel not being allocated a correct weight within the output price index, which resulted in Petroleum Products being around half the correct weight of 6.5% since the start of the year.

This error does not affect the overall trend, but it has led to the headline 12-month output price rate being revised up by an average of 1.8 percentage points between January and October 2022.

The 12-month output price rate now stands at 17.2% in October 2022. The peak was revised up to 19.7% in July 2022.

The correction in Output PPI weights, and the inclusion of diesel prices within the data, now mean that from January to October 2022 Petroleum Products has the largest positive contribution to the 12-month rate of output inflation. For October 2022, Petroleum Products contributed 6.1 percentage points to the 12-month rate (revised from 0.0). This is notably higher than the second main contributor, Food Products, which has a revised contribution of 3.5 percentage points in October.

The Input PPI weights were less affected. Although the upwardly revised Output PPI indices are used to estimate domestic inputs, the effect of the higher price was offset by a lower contribution from imported fuels, which was already reflected in diesel prices. The average impact on the input 12-month rate was 0.1 percentage points. In October 2022, the 12-month input price rate stood at 19.5%, with the peak in June 2022 now standing at 24.5%.

This issue occurred because of a processing error. All the affected datasets from January to October 2022 have been corrected. However, the commentary within the statistical bulletins has not been amended. Users should therefore refer to the datasets for the corrected figures. We are adopting additional system checks to ensure that this does not happen in the future. We apologise for any inconvenience this may have caused.

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Contact:
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Release date:
16 November 2022

Next release:
14 December 2022

1. Main points

  • Producer input prices rose by 19.2% in the year to October 2022, down from 20.8% in the year to September 2022.

  • Producer output (factory gate) prices rose by 14.8% in the year to October 2022, down from 16.3% in the year to September 2022.

  • Inputs of metals, crude oil and chemicals all provided downward contributions to the change in the annual rate of input inflation; these are offset slightly by positive contributions from fuel and food.

  • Petroleum products provided the largest downward contribution to the change in the annual rate of output inflation.

  • On a monthly basis, input prices increased by 0.6% and output prices increased by 0.3% in October 2022.

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2. Producer prices annual growth rates

The annual rate of input PPI has now been positive for 23 consecutive months, although it has slowed for the fourth consecutive month and is down 5.0 percentage points from the record high of 24.2% in June 2022. The annual rate of output PPI has now been positive for 22 consecutive months, but has slowed for the third consecutive month.

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3. Producer input prices

Producer input prices rose by 0.6% between September and October 2022; this is the second consecutive month that the rate has been positive following a fall of 0.9% between July and August 2022. (Table 1). The monthly rate reached a record high of 5.0% in March 2022.

The largest upward contribution to the annual input inflation rate came from metals and non-metallic minerals, which contributed 3.54 percentage points (Figure 3). This product group had an annual price increase of 16.9% in October 2022 (Table 2), which is down from 19.1% in September 2022.

The second largest contributor to the annual rate came from chemicals, which contributed 3.28 percentage points (Figure 3) and had an annual price increase of 18.7% in October 2022, down from 20.6% in September 2022.

As indicated in the Classification review of the Energy Price Guarantee and Energy Bill Relief Scheme (EBRS) statement, the data relating to the inputs of fuel will reflect the impact of EBRS. Due to the timing of October data collection the impact of the scheme has been estimated (this adjustment has reduced the annual input inflation rate by 0.2 percentage points and monthly input rate by 0.1 percentage point). This provisional value for October will be revised with the actual inclusion of EBRS next month.

Imported input prices increased by 1.2% on the month to October 2022, down from 3.8% in September 2022. The annual rate increased by 22.3% in October 2022; this is the highest the rate has been since records began in December 2009 (Table 3).

In the year to October 2022, the annual rate of input inflation was 19.2%; this is down 1.6 percentage points from 20.8% in September 2022.

Of the 10 product groups, five showed downward contributions to the change in the annual rate, with metals and non-metallic minerals providing the largest, at 0.53 percentage points (Figure 4). Metals saw a monthly decrease of 0.5% in price between September and October 2022, compared with an increase of 1.4% in the same period last year.

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4. Producer output prices

Producer output (factory gate) prices increased by 0.3% between September and October 2022, which is unchanged from the previous period (Table 4). The monthly rate has now been positive for 25 consecutive months.

Food products provided the largest upward contribution to the output annual rate, at 4.48 percentage points (Figure 5). This was mainly driven by preserved meat and meat products for the domestic market. This product group had an annual price increase of 16.1% in October 2022 (Table 5). The annual rate has seen a percentage point increase for 16 consecutive months and is now the highest it has been since records began in January 1997.

Despite providing a downward contribution to the annual rate, tobacco and alcohol products increased by 7.1% in the year to October 2022. The downward contribution is driven by the 2022 weight for this product group being lower than its weight in 2021. More information is available in our Chain-linking in business prices article and in Section 8 of this release.

The annual rate of output inflation decreased by 1.5 percentage points from 16.3% in September 2022 to 14.8% in October 2022.

Of the 10 product groups, six show downward contributions to the change in the annual rate. Increases in the price of food products continue to push up output inflation but this is offset by petroleum prices, which provides the largest downward contribution to the change in the annual output rate, at 0.82 percentage points (Figure 6). Petroleum products saw a monthly decrease of 6.1% in price between September and October 2022, compared with an increase of 10.5% in the same period last year.

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5. Producer price inflation data

Producer price inflation time series
Dataset | Released 16 November 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.

Input and output producer price inflation: contributions to the annual rates
Dataset | Released 16 November 2022
Contributions to the annual rates of input and output producer price inflation by component and overall rates.

Producer price inflation
Dataset MM22 | Released 16 November 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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6. 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 that 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).

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.

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.

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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7. 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 (QMI) on strengths, limitations, appropriate uses, and how the data were created is available in our Producer Price Index (PPI) QMI report and our Services Producer Price Indices (SPPI) QMI report.

Extension of back series

The September 2022 release saw an extension to these back series by making historical data readily available. PPI data going back to January 1957 have been stored digitally and so this publication sees the release of these index values, linked together and re-referenced to 2015 equals 100, for the headline PPI output series (GB7S).

For headline input (GHIP), this publication includes a back series to January 1984. Unlike the headline output index, the input headline was first introduced in the early 1990s, with the index data starting from 1984. This explains the difference in available back series between the two headline indices.

Annual growth rates for the output and input back series are displayed in Figure 1.

The addition of these back series does not affect the methodology used to calculate our previous data to 1973. For the periods January 1957 to December 1972, we have rescaled data from a number of historical rebased series to make these comparable with our previously published data.

Sterling effective exchange rate

The sterling effective exchange rate measures changes in the strength of sterling relative to baskets 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 transactions in the manufacturing sector.

Economic statistics governance after EU exit

Following the UK’s exit from the EU, new governance arrangements are being put in place that will support the adoption and implementation of high-quality standards for UK economic statistics. These governance arrangements will promote international comparability and add to the credibility and independence of the UK’s statistical system.

At the centre of this new governance framework will be the new National Statistician’s Committee for Advice on Standards for Economic Statistics (NSCASE) run by the UK Statistics Authority. NSCASE will support the UK by ensuring its processes for influencing and adopting international statistical standards are world leading. The advice NSCASE provides to the National Statistician will span the full range of domains in economic statistics, including the national accounts, fiscal statistics, prices, trade and the balance of payments and labour market statistics.

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8. Strengths and limitations

Strengths

These data:

  • provide users with valuable insight into the changes in the prices of goods and services bought and sold by UK manufacturers
  • are comprehensive, covering many products at a much greater level of detail than other surveys
  • are internationally comparable with any country using the classification by product activity (CPA) or the central product classification (CPC) systems – the classification structure is available to review on the Eurostat website
  • are created using a rotational sampling method to enable many new products and new respondents to be included
  • are chain-linked annually to improve results in deflation by reducing substitution bias

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.

Response rates in October 2022

The response rate for the domestic PPI shows an increase between September and October 2022, whereas the response rates for the Import Price Index (IPI) and Export Price Index (EPI) show a decrease between September and October 2022 (Table 6).

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10. Cite this statistical bulletin

Office for National Statistics (ONS), released 16 November 2022, ONS website, statistical bulletin, Producer price inflation, UK: October 2022

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Contact details for this Statistical bulletin

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