Producer price inflation, UK: December 2023 including services, October to December 2023

• Producer input prices fell by 2.8% in the year to December 2023, down from a revised fall of 2.7% in the year to November 2023.

• Producer output (factory gate) prices rose by 0.1% in the year to December 2023, up from a revised fall of 0.1% in the year to November 2023.

• On a monthly basis, producer input prices fell by 1.2% and output prices fell by 0.6% in December 2023.

• Input and output price levels have been relatively stable since June 2023, and remain substantially higher than their 2021 levels, the last time producer price inflation was stable.

• Services producer prices rose by 3.6% in the year to Quarter 4 (Oct to Dec) 2023, up from a revised increase of 3.5% in the year to Quarter 3 (July to Sept) 2023.

The annual inflation rate of the input Producer Price Index (PPI) was negative for the seventh consecutive month, while the annual inflation rate of the output PPI was positive for the first time since September 2023. Output PPI has fluctuated between negative 0.5% and 0.5% annual change for the last seven months (Figure 1).

The index levels for both input and output prices have remained high since mid-2022 (Figure 2). The small changes seen in the past few months, when compared with the broadly stable values over the past year, have created a fall in the annual inflation rate for producer input prices, even though the index level remains high. We explain this in further detail in our Beware base effects blog post.

The figures for both November and December 2023 are provisional, and figures for the latest 12 months are subject to revisions as additional survey data are returned and validated. Effective response rates at time of first publishing can be found in Section 9: Strengths and limitations.

The annual inflation rate of producer input prices was negative 2.8% in the year to December 2023, which is down from negative 2.7% in the year to November 2023. The monthly producer input inflation rate fell to negative 1.2% in December 2023, the largest monthly fall since June 2023 (Table 1), following a revised 0.4% decline in November 2023.

The largest downward contributions to the annual input inflation rate in December 2023 came from inputs of chemicals and inputs of crude oil, which contributed 1.60 and 0.64 percentage points, respectively (Figure 3). Chemical and crude oil prices fell by 8.5% and 10.2%, respectively, in the year to December 2023 (Table 2).

Inputs of other parts and equipment provided the largest offsetting upward contribution, at 0.39 percentage points.

Of the 10 product groups for input Producer Price Index (PPI), 3 showed downward contributions to the change in the annual inflation rate, with inputs of other parts and equipment providing the largest, at 0.80 percentage points (Figure 4).

Prices of other parts and equipment fell by 0.5% between November and December 2023. The annual inflation rate for this product group fell from 1.6% in November 2023 to 1.5% in December 2023.

The prices of materials and fuels imported by UK manufacturing fell by 1.5% between November and December 2023, compared with a revised fall of 1.3% between October and November 2023. The annual inflation rate was negative 2.2% in December 2023, up from a revised rate of negative 2.7% in November 2023. The fall in import prices is consistent with the rise in the value of sterling in December 2023, which rose by 0.9% on the month and by 3.5% in the year to December 2023 (Table 3).

The annual inflation rate of producer output (factory gate) prices was 0.1% in the year to December 2023, up from a revised fall of 0.1% in the year to November 2023.

Producer output prices fell by 0.6% in December 2023, while the monthly inflation rate for November 2023 was revised up to 0.0% from a small fall of 0.1% (Table 4).

The largest upward contribution to the annual output inflation rate in December 2023 came from "other outputs", which contributed 0.60 percentage points (Figure 5). This product group saw a price increase of 2.7% in the year to December 2023 (Table 5), down from a 3.1% increase in the year to November 2023.

Food products and metals provided the second- and third-largest upward contributions, at 0.37 and 0.35 percentage points, respectively.

The largest offsetting downward contributions to the annual output inflation rate in December 2023 came from chemicals and petroleum products, which contributed 0.96 and 0.68 percentage points, respectively.

Of the 10 product groups for output Producer Price Index (PPI), 4 showed upward contributions to the change in the annual inflation rate, with metals providing the largest, at 1.36 percentage points (Figure 6). The annual inflation rate for metals increased by 0.2 percentage points, from 2.5% in November 2023 to 2.7% in December 2023.

The largest offsetting downward contribution to the change in the annual inflation rate came from chemicals, at 1.18 percentage points.

The annual rate of inflation for services, excluding financial and insurance services, provided by UK companies, was 3.6% in Quarter 4 (Oct to Dec) 2023. The annual rate has seen an increase for the first time since Quarter 3 (July to Sept) 2022, when there was a record high of 6.2% (Figure 7).

The quarter-on-quarter growth of services producer prices was 0.4% in Quarter 4 2023, down from 0.5% in Quarter 3 2023 (Table 6).

The largest upward contribution to the annual rate for Services Producer Price Index (SPPI) in Quarter 4 2023 came from professional, scientific and technical services, at 1.18 percentage points (Figure 8). The annual rate in Quarter 4 2023 was 4.2%, up from 4.0% in Quarter 3 2023 (Table 7). This was mainly attributed to price increases in legal and accounting services.

The second-largest annual contribution came from information and communication services, at 0.78 percentage points, with an annual inflation rate of 4.1%.

The largest upward contribution to the quarterly rate came from accommodation and food services, at 0.11 percentage points, with a quarterly price increase of 1.2%.

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 attributed to 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).

If the producer price inflation rate is a positive value, this indicates that prices have risen, while a negative value indicates that prices have fallen.

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 prices development plan

The Office for Statistics Regulation (OSR) quality report of the Producer Price Indices (PPI) was published in July 2023. The report notes the excellent progress made recently in bringing PPI in line with methodological best practice, but also highlights areas that need to be improved.

Read the full OSR report.

Our Producer prices development plan was published in October 2023, detailing the work that will be undertaken over the next year to improve the quality of PPI data and continue to meet user needs.

The Producer Price Index

The 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 decrease in inflation rate - contribution is negative

• decrease in weight, increase in inflation rate - contribution is usually negative

• decrease in weight, no change in inflation rate - contribution is negative

• no change in weight or inflation rate - no change

• no change in weight, increase in inflation rate - contribution is usually positive

• no change in weight, decrease in inflation rate - contribution is usually negative

• 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 and our Services Producer Price Inflation QMI.

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

• 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: 2017 datasets

• UK SPPI standard errors: 2016 to 2017 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.

Data revisions policy

Figures for the latest two months are provisional, and the latest 12 months are subject to revisions because of late and revised respondent data. The PPI revision policy is now in line with that of the national accounts. Published information on our revisions policy and revisions triangles shows how estimates are revised over time.

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

• 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

• 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 December 2023

The response rates for the domestic PPI and Export Price Index (EPI) decreased between November and December 2023, whereas the response rate for the Import Price Index (IPI) increased (Table 8).

The response rate for the SPPI shows a slight decrease between Quarter 3 (July to Sept) 2023 and Quarter 4 (Oct to Dec) 2023 (Table 9).