Producer price inflation, UK: June 2023 including services, April to June 2023

• Producer input prices fell by 2.7% in the year to June 2023, down from a rise of 0.4% in the year to May 2023.

• Producer output (factory gate) prices rose by 0.1% in the year to June 2023, down from a rise of 2.7% in the year to May 2023.

• On a monthly basis, producer input prices fell by 1.3% and output prices by 0.3% in June 2023.

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

• While annual producer price inflation rates have been slowing in recent months, and prices in some sectors have started to fall, the index levels for both input and output prices remain substantially higher than their 2021 levels.

• Services producer prices rose by 4.8% in the year to Quarter 2 (Apr to June) 2023, down from a rise of 5.3% in the year to Quarter 1 (Jan to Mar) 2023.

The annual rate of the input Producer Price Index (PPI) is negative for the first time since November 2020. The rate has slowed for the twelfth consecutive month from its record annual high of 24.4% in June 2022 (Figure 1).

The annual rate of the output PPI has now been positive for 30 consecutive months, but it has been slowing for the past 11 months. The annual rate of 0.1% is down from its recent peak of 19.6% in July 2022 and is the lowest the rate has been since December 2020.

The index levels for both input and output prices have remained high since June 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 3.1 percentage points from a rise of 0.4% in May 2023 to a fall of 2.7% in June 2023 (Table 1). This is the lowest the annual rate has been since August 2020. For more detail, see our Producer price inflation records dataset.

The monthly producer input inflation decreased by 1.3% in June 2023, down again from a decrease of 1.2% in May 2023 (Table 1). This is the biggest monthly decrease since April 2020. The figures for both May and June 2023 are provisional and therefore may be revised as additional survey data come in.

The largest downward contribution to the annual input inflation rate in June 2023 came from inputs of crude oil, which contributed 3.72 percentage points (Figure 3). This product group saw a price decrease of 41.1% in the year to June 2023 (Table 2), which is down from a 33.2% decrease in May 2023. The average price for world crude oil was $73 per barrel in American dollars in June 2023, which is down 37.3% on the year, according to The World Bank.

Inputs of metals and non-metallic minerals, and inputs of other produced materials, provided the second and third largest downward contributions, at 1.34 and 1.02 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 1.71 and 1.41 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.

All 10 product groups for input Producer Price Index (PPI) showed downward contributions to the change in the annual inflation rate, with crude oil providing the largest at 0.92 percentage points (Figure 4).

In the year to June 2023, crude oil prices fell by 41.1%, down from a fall of 33.2% in May 2023. This is the lowest the annual rate has been since May 2020. Crude oil prices fell 3.0% between May and June 2023, compared with a monthly increase of 10.1% from May to June 2022.

The monthly inflation rate of materials and fuels imported by UK manufacturing decreased by 1.2% in June 2023, down from a decrease of 1.0% in May 2023. The annual inflation rate was negative 1.9% in the year to June 2023, down from an increase of 1.6% in the year to May 2023 (Table 3).

The annual inflation rate of producer output (factory gate) prices decreased by 2.6 percentage points from 2.7% in May 2023 to 0.1% in June 2023, the lowest annual rate since December 2020.

The monthly producer output inflation decreased by 0.3% in June 2023, up from a fall of 0.6% in May 2023 (Table 4).

The most significant contribution to the annual input inflation rate in June 2023 came from refined petroleum products, which had a negative contribution of 4.72 percentage points (Figure 5). Refined petroleum products saw a price fall in the year to June 2023 of 40.3% (Table 5).

This was more than offset by upward contributions from 7 of the 10 output product groups. The largest upward contributions came from food products as well as other outputs from manufacturing, which contributed 1.95 and 1.53 percentage points respectively. Food product inflation was driven by condiments and seasonings, as well as bakery goods, preserved meat and meat products, and processed and preserved fish, crustaceans and molluscs. Other outputs of manufacturing continue to be driven by the energy intensive production of articles of concrete, cement and plaster.

Of the 10 product groups, 9 showed downward contributions to the change in the annual inflation rate, with petroleum products providing the largest at 1.24 percentage points (Figure 6). Petroleum products saw a monthly decrease in price of 1.7% in June 2023, compared with an increase of 12.7% in June 2022.

The annual rate of inflation for services sold by UK companies, the Services Producer Price Index (SPPI), was 4.8% in Quarter 2 (Apr to June) 2023. The annual rate has slowed for the third consecutive quarter following the record high of 6.2% in Quarter 3 (July to Sept) 2022 (Figure 7).

The quarter-on-quarter growth of services producer prices was 1.4% in Quarter 2 2023, up from 1.2% in Quarter 1 (Jan to Mar) 2023 (Table 6).

The largest contribution to annual services producer prices in Quarter 2 2023 came from information and communication services at 3.50 percentage points (Figure 8). The annual rate in Quarter 2 2023 was 4.0%, which is down from 4.7% in Quarter 1 2023 (Table 7). This was mainly driven by computer programming services.

The second largest annual contribution came from professional, scientific and technical services, at 2.48 percentage points, with an annual inflation rate of 5.2%. The annual inflation rate for this product group has picked up for the first time since Quarter 1 2022.

Professional, scientific and technical services also provided the largest upward contribution to the quarterly rate, at 0.41 percentage points, with a quarterly price increase of 1.5%.

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 June 2023

The response rate for the domestic PPI and Import Price Index (IPI) show a slight decrease between May and June 2023, whereas the response rate for the Export Price Index (EPI) shows an increase for the same period (Table 8).

The response rate for the SPPI shows an increase between Quarter 1 (Jan to Mar) 2023 and Quarter 2 (Apr to June) 2023 (Table 9).