Producer price inflation, UK: December 2022 including services, October to December 2022

• Producer Price Index (PPI) weights for 2021 and 2022 have been corrected, which has resulted in a small number of revisions within the previously published data back to January 2021; there has been no change applied to SPPI weights, see Section 2 for more information.

• Producer input prices rose by 16.5% in the year to December 2022, down from 18.0% in the year to November 2022, and down from 20.2% in the year to October 2022.

• Producer output (factory gate) prices rose by 14.7% in the year to December 2022, down from 16.2% in the year to November 2022 and down from 17.5% in the year to October 2022.

• Inputs of other parts and equipment, and petroleum products provided the largest downward contributions to the change in the annual rates of input and output inflation, respectively.

• On a monthly basis, input prices decreased by 1.1% and output prices decreased by 0.8% in December 2022.

• Services producer prices rose by 5.2% in the year to Quarter 4 (Oct to Dec) 2022, down from a record high of 6.2% in the year to Quarter 3 (July to Sept) 2022.

As a result of the quality assurance preparing the PPI weights data for 2023, an error was identified in the 2022 weights whereby the price index for diesel fuel had not been correctly weighted within PPI for the whole of 2022. A Producer Price Index correction notice was published after the October release detailing the revisions made to PPI data for January to October 2022.

A further review was conducted of the data mapping systems used to align all data sources to the PPI. This identified additional, smaller errors in the PPI weights for both 2021 and 2022. As a result, the PPI was suspended to allow for a full investigation and quality assurance of the production process to take place. This quality assurance has now been completed and data source checks have been extended to ensure that all data is aligned correctly and fully audited at the time of use in calculating PPI weights. These additional steps to the production process will ensure that these errors are not repeated in other areas.

The errors identified in aligning the data sources to PPI for the purpose of calculating index weights affected five product groups within input and output PPI. These are listed below:

• products of agriculture

• printing and reproduction services

• fabricated metal products

• repair and installation services of machinery and equipment

• other transport equipment

The change in weights resulting from these corrections has been minor and this is reflected in the scale of revisions to headline input and output PPI indices (Table 1). The scale of revisions is greater within input PPI because one affected category - products of agriculture - is not included in the output PPI. While revisions affected weights back to January 2021, the revisions to annual growth rates are less than 0.1 percentage point in many periods.

The impact of revisions on the headline indices is small as the total number of published indices that have been revised is also relatively small. The extent of these revisions are summarised in Table 2.

Revisions to the monthly and annual growth rates of the headline series are also covered in more detail in the revisions triangle datasets:

• PPI revision triangle: total input one month (GHIP)

• PPI revision triangle: total input 12 months (GHIP)

• PPI revision triangle: total output one month (GB7S)

• PPI revision triangle: total output 12 months (GB7S)

This publication was delayed by a week to complete the quality assurance described above. As of next month, it is expected that PPI will resume its normal publication cycle.

The annual rate of input PPI has now been positive for 25 consecutive months. However, it has slowed for the sixth consecutive month and is down 8.1 percentage points from the record high of 24.6% in June 2022. The annual rate of output PPI has now been positive for 24 consecutive months, but has slowed for the fifth consecutive month.

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Producer input prices fell by 1.1% between November and December 2022; this is down 0.9 percentage points from a decrease of 0.2% between October and November 2022 (Table 3). The monthly rate reached a record high of 5.1% in March 2022.

The largest upward contribution to the annual input inflation rate came from metals and non-metallic mineral products, which contributed 3.24 percentage points (Figure 3). This product group had an annual price increase of 14.4% in December 2022 (Table 4), which is down from 15.5% in November 2022. This product group also had the largest upward contribution to the annual input inflation rate in November 2022, also at 3.24 percentage points (Figure 4).

The second largest contributor to the annual rate in December 2022 came from chemicals, which contributed 2.84 percentage points (Figure 3) and had an annual price increase of 16.0% in December 2022, down from 18.3% in November 2022.

As indicated in our 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.

Imported input prices fell by 2.6% on the month to December 2022, down from a fall of 2.3% in November 2022. The annual rate increased by 16.5% in December 2022, but this is down from 20.3% in November. It is also down 8.3 percentage points from its peak of 24.8% in October 2022 (Table 5).

In the year to December 2022, the annual rate of input inflation was 16.5%; this is down 1.5 percentage points from 18.0% in November 2022.

Of the ten product groups, seven showed downward contributions to the change in the annual rate, with other parts and equipment providing the largest, at 0.60 percentage points (Figure 5). Other parts and equipment saw a monthly decrease of 0.8% in price between November and December 2022, compared with an increase of 0.5% in the same period last year.

Producer output (factory gate) prices decreased by 0.8% between November and December 2022, which is down from a 0.1% decrease between October and November 2022 (Table 6). This is the lowest the monthly rate has been since April 2020.

Food products provided the largest upward contribution to the output annual rate in December 2022, at 4.11 percentage points (Figure 6). This was mainly driven by preserved meat and meat products for domestic market. Food products had an annual price increase of 17.1% in December 2022 (Table 7), which is up from 16.9% in November 2022.

In November 2022, food products provided the second-largest upward contribution to the output annual rate, at 4.04 percentage points (Figure 7). The largest upward contribution to the output annual rate in November 2022 came from petroleum products, at 5.26 percentage points.

The annual rate of output inflation decreased by 1.5 percentage points from 16.2% in November 2022 to 14.7% in December 2022.

Of the ten product groups, four show downward contributions to the change in the annual rate. Petroleum products provided the largest downward contribution to the change in the annual output rate, at 3.12 percentage points (Figure 8). Petroleum products saw a monthly decrease of 11.9% in price between November and December 2022, compared with a smaller decrease of 1.6% in the same period last year.

The annual rate of inflation for services sold by UK companies, the Services Producer Price Index (SPPI), was 5.2% in Quarter 4 (Oct to Dec) 2022 - down from a record high of 6.2% in Quarter 3 (July to Sept) 2022 (Figure 9). Seven of the nine product groups saw a slowing in their annual rate this quarter. This is somewhat of a base effect, as explained in our Beware base effects article, since sharp increases were seen in almost all service sectors in the same quarter last year.

The quarter-on-quarter growth of services producer prices was 0.1% in Quarter 4 2022, down from 1.7% in Quarter 3 2022 (Table 8). The quarterly rate has slowed for the second consecutive quarter; this is the lowest the rate has been since Quarter 3 2020.

The largest contribution to annual services producer prices in Quarter 4 2022 (Figure 10) came from transportation and storage services. Unusual demand for coach hire due to rail strikes caused an increase in other passenger land transport services. But the overall contribution shrank on the quarter as other transportation support services saw a significant slowing in the annual rate as a result of ship-broker services reflecting the impact of lower freight rates.

The second largest annual contribution came from professional, scientific and technical services, which also saw a slowing in the annual rate. This was caused predominantly by management consultancy services. However, this fall in the annual rate was affected by the mix of work undertaken, with a higher proportion of lower value projects being completed in the quarter.

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.

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 Indices QMI report and our Services Producer Price Indices QMI report.

Other useful documentation for the PPI and the Services Producer Price Indices Report (SPPI) are our:

• Producer price indices methods changes article

• Chain-linking in business prices article

• Producer price weight changes article

• Services producer price weight changes article

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

• PPI methods and guidance (PDF, 1.14MB)

• SPPI user guidance and methodology article

• PPI standard errors article

• SPPI standard errors article

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

More information regarding the new governance following the UK's exit from the EU is available in our previous release.

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

The limitations are that:

• 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

• though the data can be revised for 12 months, PPI weights for 2021 and 2022 have been corrected for this release, which has resulted in a small number of revisions within the previously published data back to January 2021

• 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 December 2022

The response rate for the domestic PPI and Export Price Index (EPI) show an increase between November and December 2022, whereas the response rate for the Import Price Index (IPI) shows a decrease between November and December 2022 (Table 10).

The response rate for SPPI shows an increase between Quarter 3 (July to Sept) 2022 and Quarter 4 (Oct to Dec) 2022 (Table 11).