Producer price inflation, UK: July 2023

• Producer input prices fell by 3.3% in the year to July 2023, down from a fall of 2.9% in the year to June 2023.
• Producer output (factory gate) prices fell by 0.8% in the year to July 2023, down from a rise of 0.3% in the year to June 2023.
• On a monthly basis, producer input prices fell by 0.4% while output prices rose by 0.1% in July 2023.
• Inputs of crude oil and petroleum products provided the largest downward contributions to the annual rates of input and output inflation, respectively.
• While annual producer price inflation rates have turned negative, with prices in some sectors falling, the index levels for both input and output prices remain substantially higher than their 2021 levels.

The annual inflation rate of the input Producer Price Index (PPI) is negative for the second consecutive month as it continues to fall from its record high in June 2022 (Figure 1).

The annual inflation rate of the output PPI is negative for the first time since December 2020. This is the twelfth consecutive month that the annual inflation rate has slowed.

The index levels for both input and output prices have remained high since July 2022 (Figure 2). The small decreases seen in the past few months, when compared with the broadly stable values over the past year, have the effect of creating a fall in the annual inflation rate even though the index levels remain high (Figure 1). We explain this in further detail in our Beware base effects blog.

The annual inflation rate of producer input prices decreased by 0.4 percentage points from a fall of 2.9% in June 2023 to a fall of 3.3% in July 2023 (Table 1). This is the lowest the annual rate has been since May 2020. For more detail, see our Producer price inflation records dataset.

The monthly producer input inflation decreased by 0.4% in July 2023, which is up from a decrease of 1.3% in June 2023 (Table 1). The monthly rate has been negative for seven of the past nine months. The figures for both June and July 2023 are provisional and therefore may be revised as additional survey data are returned and validated.

The largest downward contribution to the annual input inflation rate in July 2023 came from inputs of crude oil, which contributed 3.39 percentage points (Figure 3). Overall prices in this product group saw a decrease of 38.8% in the year to July 2023 (Table 2), this is a continuation of market trends over recent months.

Inputs of metals and non-metallic minerals, and inputs of other produced materials, provided the second and third largest downward contributions, at 1.17 and 1.09 percentage points, respectively.

The downward contributions are being offset by upward contributions from inputs of other parts and equipment, as well as inputs of fuel, which contributed 1.46 and 1.18 percentage points, respectively.

As indicated in our Classification review of the Energy Bills Discount Scheme statement, the data relating to the inputs of fuel now reflect the impact of the Energy Bills Discount Scheme (EBDS), which took effect from May 2023.

Of the 10 product groups for input Producer Price Index (PPI), 7 showed downward contributions to the change in the annual inflation rate, with chemicals and other parts and equipment providing the largest, both at 0.26 percentage points (Figure 4).

In the year to July 2023, chemical prices fell by 5.4%, down from a fall of 3.9% in June 2023. Other parts and equipment rose 3.3% in the year to July 2023, a slower increase than the 4.7% seen in the year to June 2023.

The monthly inflation rate of materials and fuels imported by UK manufacturing decreased by 0.7% in July 2023, up from a decrease of 1.7% in June 2023. The annual inflation rate was negative 3.3% in the year to July 2023, down from a decrease of 2.9% in the year to June 2023 (Table 3).

The annual inflation rate of producer output (factory gate) prices decreased by 1.1 percentage points from 0.3% in June 2023 to a fall of 0.8% in July 2023. This is the first time the annual rate has been negative since December 2020 and the lowest the rate has been since October 2020.

The monthly producer output inflation increased by 0.1% in July 2023, up from a fall of 0.2% in June 2023 (Table 4).

The largest downward contribution to the annual output inflation rate in July 2023 came from refined petroleum products, which contributed 4.74 percentage points (Figure 5). This product group saw a price decrease of 40.0% in the year to July 2023 (Table 5), which is down from a 39.3% decrease in June 2023.

Despite providing the second-largest downward contribution to the annual rate, metals increased by 2.1% in price in the year to July 2023. The downward contribution is driven by the 2023 weight for this product group being lower than its weight in 2022. We provide more information in our Chain-linking in business prices article and in Section 5 of our Producer price inflation, UK: February 2023 bulletin.

The largest offsetting upward contributions to the annual output inflation rate in July 2023 came from food products and other outputs from manufacturing, which contributed 1.42 and 1.37 percentage points, respectively.

Of the 10 product groups, 9 showed downward contributions to the change in the annual inflation rate, with food products providing the largest at 0.53 percentage points (Figure 6).

In the year to July 2023, food prices increased 6.4%, down from 8.8% in June 2023. Food products saw a monthly price decrease of 0.3% in July 2023; this reflects price trends in most food product groups with the exception of milled grain, bakery goods, chocolate, condiments and prepared meals.

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. 

Steps are already being taken to address the requirements of the report. In the coming months, we will update users on our plans to address the issues raised in this report. 

Read the full OSR report.

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.

The Producer Price Index (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 – contribution is usually positive
• 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 the 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 July 2023

The response rate for the domestic PPI and Export Price Index (EPI) show a slight decrease between June and July 2023, whereas the response rate for the Import Price Index (IPI) shows an increase for the same period (Table 6).