Producer price inflation, UK: January 2019

• The headline rate of output inflation for goods leaving the factory gate was 2.1% on the year to January 2019, down from 2.4% in December 2018.

• The growth rate of prices for materials and fuels used in the manufacturing process slowed to 2.9% on the year to January 2019, down from 3.2% in December 2018.

• Petroleum products and crude oil provided the largest downward contribution to the change in the annual rate of output and input inflation respectively.

• Crude oil prices fell by 6.9% on the year to January 2019, the largest annual decrease since June 2016.

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 statistics.

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). The Soft Drinks Industry Levy, introduced in April 2018, is also excluded. 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 Standard Industrial Classification 2007: SIC 2007 code appropriate to the index, and a four-character alpha-numeric code (series ID), 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. Revisions to seasonal adjustment factors are re-estimated every month for the seasonally adjusted series. A routine seasonal adjustment review is normally conducted in the autumn each year.

Figure 1 shows input and output Producer Price Indices (PPI) over 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 (output PPI). 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) fell by 0.3 percentage points to 2.1% in January 2019 (Table 1). The 12-month rate of output inflation has remained positive since July 2016. On the month, output inflation was flat.

Figure 2 shows contributions by product group to the monthly and annual rate of output inflation and Table 2 shows monthly and annual growth rates by product group.

Chemicals and pharmaceutical products provided the largest upward contribution of 0.36 percentage points to the annual rate (Figure 2), due to price growth of 4.8% on the year to January 2019 (Table 2). This growth was driven mainly by prices for chemicals and chemical products, which increased by 6.7% on the year to January 2019.

Transport equipment showed the second-largest upward contribution of 0.32 percentage points to the annual rate, with annual growth of 2.7% in January 2019. Other manufactured products, tobacco and alcohol and food products also made notable contributions this month.

The only downward contribution to the monthly rate of output inflation came from petroleum products (0.22 percentage points). Prices for petroleum products fell 3.1% on the month in January 2019, the third consecutive monthly drop within this product group.

Figure 3 shows contributions to the change in the annual rate for factory gate prices (output prices).

Five product groups provided downward contributions to the 0.3 percentage points decrease in the rate between December 2018 and January 2019. The largest downward movement came from petroleum products, at 0.76 percentage points.

Food products provided the largest upward contribution to the change in the rate, at 0.40 percentage points.

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) slowed to 2.9% in January 2019, down 0.3 percentage points from December 2018 (Table 3). The 12-month rate of input inflation has slowed for the fourth consecutive month from a peak of 10.7% in September 2018, and is the lowest it has been since June 2016, but continues thirty-one months of positive inflation.

The one-month rate for materials and fuels fell for the third consecutive month, with negative growth of 0.1% in January 2019 (Table 3). This was driven by imported parts and equipment, which displayed negative price growth of 0.8% on the month.

The annual rate of inflation for imported materials and fuels was 2.1% in January 2019 (Table 4), down from 2.8% in December 2018. Imported materials and fuels represent roughly two-thirds of overall materials and fuels (input prices) in terms of index weight.

On the year, the sterling effective exchange rate index (ERI) fell 1.4% (Bank of England). On the month the ERI increased 1.4% to 77.8 in January 2019 (Table 4). This follows two consecutive months of negative growth.

All else equal, a stronger sterling effective exchange rate will lead to less expensive inputs of imported materials and fuels.

Figure 4 shows contributions by product group to the monthly and annual rate of input inflation and Table 5 shows monthly and annual growth rates by product group.

The largest positive contribution to the annual rate in January 2019 came from fuel, which contributed 1.30 percentage points (Figure 4) and had annual price growth of 12.3% (Table 5). The positive contribution from fuel was driven mainly by prices for electricity production and distribution, which rose 10.1% on the year. This is the highest annual growth for this index since February 2012.

Home food materials provided the second-largest contribution to the annual rate (0.54 percentage points) with annual price growth of 3.9%.

Crude oil was the only product group to provide a downward contribution to the annual rate (1.17 percentage points), with negative price growth of 6.9%. In January 2019, world Brent prices were at an average of US $57 per barrel, down 14.6% on the year (World Bank).

Prices for imported parts and equipment were the main contributor to the negative monthly input inflation rate, with a downward contribution of 0.27 percentage points and negative price growth of 0.8% in January 2019.

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 0.3 percentage points drop in the annual rate for inputs between December 2018 and January 2019, with five product groups displaying downward contributions to the change in the rate. Crude oil provided the largest downward contribution of 0.70 percentage points.

Fuel, which covers electricity, gas and coal, provided the largest upward contribution to the change in the rate, at 0.41 percentage points.

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-months (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 error datasets were published on 18 May 2018. The tables present the calculated standard errors of the 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.