Producer price inflation, UK: April 2018

• The headline rate of inflation for goods leaving the factory gate (output prices) was 2.7% on the year to April 2018, which is unchanged from March 2018.

• Prices for materials and fuels (input prices) rose 5.3% on the year to April 2018, up from 4.4% in March 2018.

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

• The rate of input annual inflation increased for the second consecutive month; crude oil continued to provide the largest upward contribution.

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 SIC 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.

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.

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.

The annual rate of inflation for goods leaving the factory gate (output prices) remained at 2.7% in April 2018 (Table 1). On the month, output inflation was 0.3%, unchanged from March 2018. The 12-month rate of output inflation has been positive since July 2016.

Table 2 shows monthly and annual growth rates for output prices by industry and Figure 2 shows contributions by those industries to the monthly and annual rate of inflation at the factory gate.

Other manufactured products provided the largest upward contribution of 0.55 percentage points to the annual rate (Figure 2), driven by price growth of 3.5% on the year to April 2018 (Table 2). The annual growth of other manufactured products was driven mainly by prices for rubber and plastic products, which rose 13.4% on the year.

Food products showed the second-largest upward contribution to the annual rate (0.46 percentage points). Food products inflation continued to slow, with the 12-month rate decreasing from 6.4% in December 2017 to 3.0% in April 2018, which is the lowest annual growth in this sector since February 2017.

The largest upward contribution to the monthly rate of output inflation came from petroleum prices, which saw an increase of 2.3 percentage points from a negative 0.6% in March 2018 to 1.7% in April 2018.

Figure 3 shows contributions to the change in the annual rate for factory gate prices (output prices). This month, the rate stayed the same due to a number of offsetting movements.

The largest upward contribution came from petroleum products at 0.18 percentage points, whilst clothing, textile and leather, and tobacco and alcohol provided small upward contributions.

The largest downward contributions came from computer, electrical and optical equipment, and food products, at 0.15 and 0.07 percentage points respectively. Transport equipment provided a small downward contribution.

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) rose to 5.3% in April 2018, which is up 0.9 percentage points from March 2018. This was driven by crude oil prices, which have increased on the year at a rate of 19.9% in April 2018, 6.4 percentage points higher than in March 2018. The 12-month rate of input inflation has been positive since July 2016.

The one-month rate for materials and fuels increased by 0.3 percentage points to 0.4% in April 2018 (Table 3). This is the second consecutive month of positive monthly inflation after a negative 0.4% in February 2018. The monthly rate of input inflation was also driven by crude oil prices, which increased by 4.8% on the month.

The annual rate of inflation for imported materials and fuels was 4.5% in April 2018 (Table 4), up from 3.0% in March 2018. Imported materials and fuels have now shown positive annual inflation for 23 consecutive months; this is the first time the annual rate has picked up since November 2017. On the month, inflation for imported materials and fuels was up 0.5%, after prices were flat in March 2018. This is the first time since January 2018 that we have seen positive monthly inflation within this index. 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 80.3 in April 2018. This is a 1.4% increase from March 2018 and is the largest monthly growth since September 2017 when it rose 2.1%. It is the eighth consecutive month where the ERI shows positive growth on the month.

On the year, the ERI was up 2.6% in April 2018, down from 3.4% in March 2018. This is the fourth consecutive month of positive annual growth since figures were flat in December 2017. All else equal, a stronger sterling effective exchange rate will lead to cheaper inputs of imported materials and fuels.

This month, the annual rate of inflation for imports is showing an increase, influenced by the world price for crude oil rising faster than the sterling effective exchange rate.

Table 5 shows monthly and annual growth rates for input prices by industry and Figure 4 shows contributions by those industries to the monthly and annual rate of input price inflation.

The largest upward contribution to the annual rate in April 2018 came from crude oil, which contributed 3.0 percentage points (Figure 4) and had annual price growth of 19.9% (Table 5), up from 13.5% last month. The upward contribution from crude oil was driven mainly by imported crude petroleum and natural gas prices, which rose 20.1% on the year.

Fuel and home food materials provided the second- and third-largest contributions to the annual rate, with 0.75 and 0.63 percentage points respectively. Prices for fuel rose 7.3% on the year, while prices for home food materials rose 4.5%.

Crude oil prices were also the main driver to the increase in the monthly input inflation rate, with an upward contribution of 0.85 percentage points and a price growth of 4.8%.

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 0.9 percentage points increase in the annual rate for inputs between March 2018 and April 2018, with five product groups displaying upward contributions to the change in the rate. Crude oil provided the largest upward contribution of 0.88 percentage points. Imported metals provided the second-largest upward contribution at 0.13 percentage points, whilst other imported parts and equipment; other imported materials; and home food materials provided smaller upwards contributions.

Four industries provided a negative contribution to the change in the rate, with fuel displaying the largest downward contribution of 0.20 percentage points. Imported chemicals provided the second-largest downward contribution at 0.08 percentage points, whilst imported food and other home-produced materials provided smaller negative contributions.

In addition to the data included within this statistical bulletin, the following detailed datasets are available:

Aerospace and electronic cost indices time series data

Producer Price Index time series data

Higher, lower and equal movements for each Producer Price Index are shown in the Producer price inflation records: monthly figures.

A summary of the revisions to PPI data are available in the PPI revision triangles:

Producer price inflation revision triangle: total output 12-month (JVZ7)

Producer price inflation revision triangle: total output 1-month (JVZ7)

Producer price inflation revision triangle: total input 12-months (K646)

Producer price inflation revision triangle: total input 1-month (K646)

Other important measures of inflation and prices include the Consumer Prices Index (CPI) and the Services Producer Price Index (SPPI).

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, PPI standard errors were published on 18 May 2018. The tables present the calculated standard errors of the Producer Price Index (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.