Producer price inflation, UK: April 2020

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).

This is the latest release. View previous releases

This is an accredited national statistic.

Cyswllt:
Email Martina Portanti

Dyddiad y datganiad:
20 May 2020

Cyhoeddiad nesaf:
17 June 2020

1. Main points

  • The headline rate of output inflation for goods leaving the factory gate was negative 0.7% on the year to April 2020, down from 0.3% in March 2020.

  • The price for materials and fuels used in the manufacturing process displayed negative growth of 9.8% on the year to April 2020, down from negative growth of 3.1% in March 2020.

  • Petroleum products made the largest downward contribution to the change in the annual rate of output inflation.

  • Crude oil provided the largest downward contribution to the annual rate of input inflation.   

  • Crude oil prices have seen a record fall on the month and the year, driven by factors including reduced global demand during the coronavirus (COVID-19) pandemic and oversupply after Organization of the Petroleum Exporting Countries plus group (OPEC+) failed to cut production in March and April 2020.

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2. Things you need to know about this release

Coronavirus (COVID-19) in April 2020

On 23 March 2020, the UK and devolved governments announced official guidance on restrictions of movement for the UK as a result of the coronavirus (COVID-19) pandemic. Data collection for the Producer Price Index (PPI) surveys, including the surveys measuring domestic, import and export prices for April 2020, was via paper questionnaires that were sent to businesses on 19 March 2020, asking to return prices that were applicable in April.

The closure of workplaces and premises during April 2020 as a result of the government restrictions has led to the response rate for April 2020 being lower in comparison with other months. The response rate for the domestic PPI was 66.9% in April 2020 compared with 80.5% in February 2020. We closely monitor response rates in each publication and use statistical methods to deal with non-response. For further information, please see Section 8: Quality and methodology.

We have worked closely with our business respondents and data suppliers, and we have used additional data sources to quality assure the estimates in this publication. These include qualitative information sourced from manufacturing industry respondents to the Business Impact of Coronavirus (COVID-19) Survey (BICS) and anecdotal evidence from responders to both the BICS and/or PPI surveys.

Methodology changes

The Office for National Statistics (ONS) will be implementing important methodological improvements to the PPI and Services Producer Price Index (SPPI) by summer 2020. These include moving from fixed-base weights to annual chain-linking, which will improve the accuracy of these statistics. At the same time, we will be introducing changes to the level of detail of the data we publish and changes to our producer price inflation headline figure from net to gross, in line with international best practice. To support users with the transition to the new headline definition, Section 6: Gross and net producer price indices includes a comparison between the existing measures of output and input producer price inflation on a net and gross basis.

We will pre-announce the exact date when these changes will be implemented over the coming few months to give users as much notice as possible.

About the PPI

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, and rent.

The input price measures the price of materials and fuels bought by UK manufacturers for processing. It includes materials and fuels that are either imported or sourced in the domestic market. It is not limited to materials used in the final product, but it 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 (SDIL), 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 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 producer price inflation.

Figures for the latest two months are provisional, and the latest five months are subject to revisions taking account 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.

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3. Producer price inflation summary

Figure 1 shows input and output Producer Price Indices (PPIs) over the past 15 years. Input producer price inflation is driven mostly by commodity prices, which tend to be more volatile over time, compared with prices for finished goods (output producer price inflation). Input producer price inflation is also sensitive to exchange rate movements, as roughly two-thirds of inputs into the UK manufacturing sector are imported.

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4. Annual output inflation displayed negative growth for the first time since June 2016

The annual rate of inflation for goods leaving the factory gate (output prices) fell by 0.7% in April 2020, down 1.0 percentage points from growth of 0.3% in March 2020 (Table 1). This is the first time the rate has been negative since June 2016, following 45 consecutive months of positive annual inflation, and this is the lowest the rate has been since March 2016.

On the month, the rate of output inflation was negative 0.7% in April 2020, down from negative 0.2% in March 2020. The monthly rate has been negative for seven of the last eight months.

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.

Of the 10 product groups, three provided negative contributions to the output annual rate.

Petroleum provided the largest downward contribution, of 1.38 percentage points, to the annual rate (Figure 2), with negative annual price growth of 20.2% on the year to April 2020 (Table 2). This is the lowest the annual rate has been since January 2015. This drop in prices reflects continuing low prices for crude oil and reduced demand for petroleum products, particularly for transport, during the coronavirus (COVID-19) pandemic.

Chemicals and pharmaceuticals displayed the second-largest downward contribution, of 0.12 percentage points, to the annual rate, with negative annual growth of 1.8% in April 2020. The annual rate for this product group has remained negative for 10 consecutive months. This was driven by chemicals and chemical products, which had a negative growth of 2.3% in April 2020.

Of the seven product groups that provided a positive contribution to the annual rate, tobacco and alcohol provided the largest, at 0.25 percentage points. The annual rate for tobacco and alcohol rose by 2.9% on the year to April 2020.

On the month, output inflation was negative 0.7%, with petroleum products displaying the largest downward contribution at 0.66 percentage points. Petroleum products fell by 10.2% on the month in April 2020; this is the lowest the rate has been since records began in January 1996.

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

There was a 1.0 percentage point decrease in the annual rate for output prices, from 0.3% in March 2020 to negative 0.7% in April 2020. Of the 10 product groups, nine displayed downward contributions to the change in the rate, with petroleum products providing the largest, at 0.79 percentage points (Figure 3). The annual rate of petroleum products was negative 20.2% in April 2020, down from negative 9.3% in March 2020. Petroleum products fell by 10.2% between March and April 2020, compared with an increase of 2% between the same two months in 2019. This also contributed to the decrease in the annual rate.

Chemicals and pharmaceuticals provided the only upward contribution to the change in the annual rate, at 0.01 percentage points.

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5. Monthly input inflation fell to its lowest rate since records began

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) fell by 9.8% in April 2020, down from negative 3.1% in March 2020. This is the lowest the rate has been since December 2015 and the seventh time in the last nine months that the rate has been negative.

The monthly rate for materials and fuels purchased was negative 5.1% in April 2020, down from negative 3.8% in March 2020. This is the lowest the rate has been since records began in January 1996.

The annual rate of inflation for imported materials and fuels was negative 9.7% in April 2020 (Table 4), which is down 7.5 percentage points from March 2020 when it was negative 2.2%. The monthly rate was negative 6.2% in April 2020, down from negative 3.1% in March 2020. This is the lowest the monthly rate has been since records began in January 1996. Imported materials and fuels represent roughly two-thirds of overall materials and fuels (input prices) in terms of index weight.

The Sterling effective exchange rate index (ERI) rose by 1.7% on the month in April 2020. On the year, the ERI displayed negative growth of 1.6% in April 2020, which is up 2.2 percentage points from negative 3.8% in March 2020 (source: Bank of England).

All else being equal, a rise in the value of Sterling would be expected to reduce the cost of imports.

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.

Of the nine product groups, three provided negative contributions to the input annual rate.

The largest downward contribution to the annual rate came from crude oil, which contributed 11.08 percentage points (Figure 4) and had negative annual price growth of 61.3% (Table 5). This is the lowest the annual rate has been since records began in January 1996. This downward contribution was driven by imported crude petroleum and natural gas, which was down 59.6%; this is also a record low. The average price for world crude oil was US $21 per barrel in April 2020, the lowest it has been since February 2002. This is down 34.7% on the month and 69.3% on the year, according to World Bank.

Prices for crude oil typically reflect a range of factors, including geopolitical events around the world. The very large fall in prices in April 2020 continued the trend seen in March and reflected several market conditions, including a failure of the Organization of the Petroleum Exporting Countries plus group (OPEC+) countries to agree to further supply cuts in early March and reduced global demand for crude oil during the coronavirus (COVID-19) pandemic.

By March 2020, COVID-19 had spread and led more countries to impose restrictions on activity including work and travel, many of which are ongoing, further reducing the global demand for oil. These exceptional global conditions continued in April 2020 and contributed to the record annual and monthly falls in prices for the crude oil component of input producer price inflation.

Imported chemicals provided the second-largest downward contribution to the annual rate, at 0.48 percentage points, with negative price growth of 3.8%. The annual rate for this product group has remained negative for 10 consecutive months. This was driven by imported products used in the manufacture of petrochemicals, which fell by 7.1% on the year.

The largest upward contribution to the annual rate came from imported metals, with a contribution of 0.84 percentage points and positive price growth of 10.3%. The annual rate for this product group has remained positive for 46 consecutive months.

On the month, crude oil also provided the largest downward contribution of 3.82 percentage points, with prices falling by 34.1%. This follows another large monthly drop in crude oil prices of 29.6% in March. These are the lowest the monthly rates have ever been since records began in January 1996.

Figure 5 shows contributions to the change in the annual rate of inflation for materials and fuels purchased by manufacturers (input prices).

The annual rate for input prices fell by 6.7 percentage points, from negative 3.1% in March 2020 to negative 9.8% in April 2020. Of the nine product groups, eight displayed downward contributions to the change in the rate.

Crude oil provided the largest downward contribution to the change in the rate, at 4.76 percentage points. The annual rate of crude oil fell by 24.5 percentage points, from negative 36.8% in March 2020 to negative 61.3% in April 2020. Crude oil fell by 34.1% between March and April 2020, compared with an increase of 7.6% between the same two months in 2019. This also contributed to the decrease in the annual rate.

Imported metals provided the second-largest downward contribution to the change in the rate, at 0.65 percentage points.

Home-produced food provided the only upward contribution to the change in the rate, at 0.01 percentage points.

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6. Gross and net producer price indices

Producer Price Indices (PPIs) are measured on two different bases: gross and net of inter-sector sales. Gross sector PPIs include products sold by one business to another business classified to the same industry sector. Net sector PPIs exclude (net out) products sold by a business to another business classified to the same industry sector. The Office for National Statistics (ONS) currently headlines with net sector PPIs, which include duty. We will move our headline to a gross sector basis excluding duty by summer 2020, in line with international best practice.

Figure 6 shows net and gross output PPIs over the past 10 years. In April 2020, the net output PPI was 114.7 while the gross output excluding duty PPI was 112.5.

Gross and net sector output PPIs display similar trends over time, although the gross indices show higher volatility, particularly at times of high inflation, either positive or negative (Figure 7). For the net output PPI, the annual growth fell to negative 0.7% in April 2020, down from 0.3% in March 2020. For the gross output excluding duty PPI, the annual growth in April 2020 was negative 3.4%, down from negative 0.9% in March 2020.

Figure 8 shows the net and gross input PPIs over the past 10 years. The trends of the PPIs are similar, although the net input PPI appears more volatile than the gross input PPI. In April 2020, the net input PPI was 106.5 while the gross input PPI was 111.2.

Figure 9 also shows that the annual growth rates for the net input PPI are more volatile than for the gross input PPI. For the net input PPI, the annual growth was negative 9.8% in April 2020, down from negative 3.1% in March 2020. For the gross input PPI, the annual growth in April 2020 was negative 4.5%, down from negative 1.6% in March 2020.

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8. Quality and methodology

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Producer price indices QMI.

If you would like more information about the reliability of the data, a Producer Price Index (PPI) standard errors article was published on 18 May 2018. The tables present the calculated standard errors of the PPI between January 2017 and 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 PPIs, including the import and export index, is available. PPIs methods and guidance (PDF, 1.14MB) provides an outline of the methods used to produce the PPIs as well as information about recent PPI developments.

Gross sector basis figures, which include intra-industry sales and purchases, are shown in the producer price inflation dataset Tables 4 and 6.

The detailed input indices of prices of materials and fuels purchased by industry (Producer price inflation 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.

Coronavirus (COVID-19)

As highlighted in Section 2: Things you need to know about this release, the coronavirus (COVID-19) pandemic has impacted on response rates in this release and is likely to be a factor in reduced response rates for future releases.

Table 6 shows the response rates for the main PPI survey at time of publishing for each reference period. Response rates were lower in April 2020 compared with other months.

The administrative data used as part of the PPI has largely been unaffected by the COVID-19 pandemic and lockdown, with the exception of some food items where the prices are collected by the Department for Environment, Food and Rural Affairs (Defra). The COVID-19 pandemic has caused unusual patterns of both supply and demand at horticultural markets, where Defra collects food prices for the Office for National Statistics (ONS). The Horticultural Market Inspectors are no longer inspecting markets but are collecting data by telephone where they can. Some Defra food data are therefore based on small sample numbers as a result of both reduced trade volumes and working patterns.

The fall in response rates in April 2020 is unlikely to have had a substantial impact on the headline PPI figures. However, the smaller sample sizes are likely to have increased volatility for some of the lower-level indices. Revisions are also likely to be larger than usual over the next few months.

Producer prices are normally imputed for non-response by using ratio imputation. The ratio imputation method calculates the growth within an index based on prices that have been returned and then applies it to the last known value for the missing price. This method ensures that if prices for a group of products increase (decrease) from one month to the next, the imputed values for non-respondents in that product group will also increase (decrease) when compared with the last known value.

In a small number of cases, prices may be manually imputed by directly using the latest available price from the latest available period. This method is applied when the nature of the product or previous information from respondents indicate that a price change is unlikely (that is, long-term contracts and fixed listing prices).

These are simple but effective methods, used as a standard internationally and recommended by international organisations specifically for the treatment of missing producer prices because of the COVID-19 pandemic (PDF, 52KB).

Links to additional ONS sources of COVID-19 information

Since the last monthly output publication, various articles and blogs have been published that help describe the ONS' response to how COVID-19 might be seen in our estimates:

Our latest data and analysis on the impact of COVID-19 on the UK economy and population is also now available on a new web page. This is the hub for all special virus-related publications, drawing on all available data.

The ONS has released a public statement on COVID-19 and the production of statistics and any specific queries on this can be directed to the Media Relations Office.

After EU withdrawal

As the UK leaves the EU, it is important that our statistics continue to be of high quality and are internationally comparable. During the transition period, those UK statistics that align with EU practice and rules will continue to do so in the same way as before 31 January 2020.

After the transition period, we will continue to produce our inflation statistics in line with the UK Statistics Authority's Code of Practice for Statistics and in accordance with internationally agreed statistical guidance and standards.

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Manylion cyswllt ar gyfer y Bwletin ystadegol

Martina Portanti
business.prices@ons.gov.uk
Ffôn: +44 (0)1633 456907