Producer price inflation, UK: March 2021 including services, January to March 2021

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).

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Cyswllt:
Email Emelia D'Silva-Parker

Dyddiad y datganiad:
21 April 2021

Cyhoeddiad nesaf:
19 May 2021

1. Main points

  • The headline rate of output inflation for goods leaving the factory gate showed positive growth of 1.9% on the year to March 2021, up from positive growth of 0.9% in February 2021.

  • The price for materials and fuels used in the manufacturing process showed positive growth of 5.9% on the year to March 2021, up from positive growth of 3.3% in February 2021.

  • Transport equipment, and metals and non-metallic minerals provided the largest upward contributions to the annual rates of output and input inflation respectively.

  • The annual rate of growth for the Services Producer Price Index (SPPI) was 1.7% in Quarter 1 (Jan to Mar) 2021, up from 0.4% in Quarter 4 (Oct to Dec) 2020.

  • Weights for the Services Producer Price Index have been updated this quarter; for further information please see the article: Services Producer Price Inflation: adjustments for coronavirus (COVID-19) in 2021 annual weight update.

  • The Office for National Statistics (ONS) has released a public statement on the coronavirus (COVID-19) and production of statistics; Section 10: Strengths and limitations describes the situation in relation to producer price inflation (PPI).

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2. Producer price inflation summary

Figure 1 shows input and output Producer Price Indices (PPIs) over the past 10 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 made up of roughly 78% domestic inputs and 22% imported inputs, which are sensitive to exchange rate movements.

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3. Producer price inflation – output analysis

The annual rate of inflation for goods leaving the factory gate (output prices) showed positive growth of 1.9% in March 2021, up from positive growth of 0.9% in February 2021 (Table 1). This is the third consecutive month the rate has been positive and the highest the annual rate of output inflation has been since April 2019, with the rate being the same in May 2019.

On the month, the rate of output inflation slowed to 0.5% in March 2021, down from 0.7% in February 2021.

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, five provided positive contributions to the output annual rate. Transport equipment provided the largest upward contribution of 1.79 percentage points to the annual rate (Figure 2) and had positive annual price growth of 0.4% in March 2021 (Table 2).

The upward contribution is mainly driven by weight changes in 2021. A 15.6% increase in weight for this category coupled with an increase in the annual growth rate has resulted in a large upward contribution to the headline rate.

The second-largest upward contribution of 0.68 percentage points came from metals, machinery and equipment (Figure 2), showing a positive annual price growth of 2.7% in March 2021 (Table 2). This is the highest the annual rate has been since February 2019.

More about economy, business and jobs

The largest downward contribution came from petroleum at negative 0.57 percentage points (Figure 2), showing a positive annual price growth of 12.9% in March 2021 (Table 2). Despite showing a positive annual growth, petroleum provided a downward contribution to the annual rate. This is because of the weight changes implemented last month as part of the move to annual chain-linking. The weight for petroleum has fallen around 23% percent between 2020 and 2021. For further information on methodology employed in calculating weights, please refer to: Annual chain-linking weights update and Chain-linking in Business Prices.

Figure 3 shows contributions to the change in the annual rate for factory gate prices (output prices) in March 2021. The annual rate of output inflation was 1.9% in March 2021, up 1.0 percentage point from 0.9% in February 2021.

Of the 10 product groups, six showed upward contributions to the change in the annual rate, with petroleum products providing the largest upward contribution to the change in the rate at 1.04 percentage points. Recent price movements in petroleum products are likely to reflect both demand and supply side factors during the ongoing coronavirus (COVID-19) pandemic as well as a base effect as petroleum prices fell 18.4% this time last year.

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4. Producer price inflation – input analysis

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) was 5.9% in March 2021, up from 3.3% in February 2021 (Table 3). This is the fourth consecutive month the rate has been positive, following 10 consecutive months of negative annual inflation between February 2020 and November 2020.

The monthly rate for materials and fuels purchased by manufacturers was 1.3% in March 2021, up 0.4 percentage points from 0.9% in February 2021.

The annual rate of inflation for imported materials and fuels was 0.9% in March 2021 (Table 4), which is up 0.8 percentage points from February 2021 when it was 0.1%.

The monthly rate was 1.3% in March 2021, up 1.8 percentage points from February 2021 when it was negative 0.5%.

The sterling effective exchange rate index (ERI) displayed a positive growth of 1.4% on the month in March 2021. On the year, the rate for March 2021 was 6.4%, which is up 6.5 percentage points from negative 0.1% in February 2021. All else being equal, a rise in the value of sterling would be expected to decrease 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 10 product groups, six provided positive contributions to the input annual rate. The largest upward contribution came from metals and non-metallic minerals, which contributed 2.70 percentage points (Figure 4) and had positive annual price growth of 11.2% in March 2021 (Table 5). The last time the annual rate was higher was in April 2017 at 12.3%.

The second-largest upward contribution came from crude oil, which contributed 2.02 percentage points (Figure 4) and had positive annual price growth of 55.1% in March 2021 (Table 5). The last time the annual rate was higher was February 2017.

Figure 5 shows movements in the 12-month growth rate for inputs of crude oil, with each month’s annual movement disaggregated by its base effect and current month effect.

The 12-month growth rate rose sharply from negative 3.3% growth in February 2021 to 55.1% growth in March 2021. While prices have increased from February to March 2021, the driving factor behind the exceptional change in the annual growth rate is the movement seen a year ago when prices plummeted at the beginning of the coronavirus pandemic. This is shown by the large “base effects” bar and the smaller “current month growth” bar for March 2021, and the index values in Figure 6.

The 12-month growth rate in crude oil prices has risen sharply while the increase on the month is more subdued. World Bank data show the barrel price of Brent crude oil as US $65 in March 2021, up from $62 in February 2021 (Figure 6). By contrast, the price per barrel was $33 in March 2020, down from $55 in February 2020. This illustrates how the increase in the annual rate almost entirely reflects the sharp decrease in crude prices a year ago as opposed to the uptick seen in recent months.

Crude oil prices are generally influenced by a range of factors, including global geopolitical events. In the first few months of 2020, negative growth in crude oil price was driven by a combination of reduced demand as COVID-19 cases increased in many countries, prompting further lockdowns and travel restrictions. The market condition worsened in the second half of 2020 as the Organization of the Petroleum Exporting Countries (OPEC) increased its output with each new month.

Recent price movements in crude oil are also likely to reflect both demand and supply side factors during the ongoing coronavirus pandemic. The implementation of the largest ever agreed supply cut by OPEC+ in April 2020 helped prop up oil prices in the face of dampened global demand. Member countries have since met monthly and decided in December 2020 to increase production in a bid to calm the upsurge in prices.

Figure 7 shows contributions to the change in the annual rate of inflation for materials and fuels purchased by manufacturers (input prices) in March 2021. The annual rate increased by 2.6 percentage points from 3.3% last month to 5.9% this month.

Of the 10 product groups, five displayed upward contributions to the change in the annual rate, with crude oil providing the largest of these at 2.17 percentage points. Metals and non-metallic minerals made the second-largest upward contribution to the change in the rate at 0.50 percentage points. The largest downward contribution to the change in the annual rate came from other parts and equipment at negative 0.33 percentage points.

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5. Services producer price inflation summary

The annual inflation rate was 1.7% in Quarter 1 (Jan to Mar) 2021, up from 0.4% in Quarter 4 (Oct to Dec) 2020. Apart from in Quarter 2 (Apr to June) 2012 where the annual rate fell to negative 0.1%, the Services Producer Price Index (SPPI) has reported positive annual growth across the past 10 years (Figure 8).

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6. Services producer price inflation – output analysis

The Services Producer Price Index (SPPI) rose 1.7% on the year to Quarter 1 (Jan to Mar) 2021, up 1.3 percentage points from 0.4% in Quarter 4 (Oct to Dec) 2020. The annual rate of growth has been positive since Quarter 3 (July to Sept) 2012 (Table 6).

The quarter-on-quarter growth of services sold by UK companies was 1.5% in Quarter 1 2021, up from 0.5% in Quarter 4 2020 (Table 6).

Of the nine sections that are combined to form the SPPI, four showed positive contributions to the annual rate (Figure 9). The largest upward contribution to the annual rate was professional, scientific and technical services, with an annual price increase of 3.3% (Table 7). This is the second consecutive quarter the annual rate has been positive, and the highest the rate has been since Quarter 3 2010.

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7. Producer price inflation data

Producer price inflation time series
Dataset | Released 21 April 2021
A comprehensive selection of data on input and output indices. Contains producer price indices of materials and fuels purchased and output of manufacturing industry by broad sector.

Output and input producer price inflation: contributions to the 12-month rates
Dataset | Released 21 April 2021
Contributions to the 12-month rates of input and output producer price inflation by component and overall rates.

Producer price inflation
Dataset MM22 | Released 21 April 2021
UK price movement data at all manufacturing, aggregated industry and product group level. Data supplied from individual manufacturers, importers and exporters. Monthly, quarterly and annual data.

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8. Glossary

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).

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.

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. Services producer price inflation

Quarterly estimates monitoring the changes in prices charged for services provided to UK-based customers for a range of industries.

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9. Measuring the data

For more information regarding how the output was created please see the Producer Price Index (PPI) Quality and Methodology Information report and the Services Producer Price Indices (SPPI) Quality and Methodology information report.

Streamlining the bulletin

The Office for National Statistics (ONS) is publishing more data and analysis than ever before. We are constantly reviewing our publications based on your feedback to make sure that we continue to meet the needs of our users. As a result, future editions of this publication will focus more strongly on headline indicators and main messages. Thank you for your continued support and we value your feedback.

Input prices

Currently we do not have time series data pre-dating December 2008 for the headline input prices (gross sector input). To enable users’ access to the back-data we will investigate a viable option to rectify this. When possible, we will pre-announce when the data will be available in order to give users as much notice as possible.

Producer Price Indices

Index numbers shown in the main text of this bulletin are on a gross sector basis. The gross sector output series measure the prices of products sold by UK manufacturers, irrespective of the classification of the customer who buys the product. Gross sector output indices are calculated at the very detailed, six-digit level.

Indices relate to average prices for a month or quarter. The full effect of a price change occurring part way through any month or quarter will only be reflected in the following period’s index.

All figures presented for Producer Price Indices (PPI) are calculated on a gross sector basis unless otherwise stated and 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.

The use of core input inflation removes the more volatile indices of food, tobacco, beverages and petrol from our statistics.

Each PPI and SPPI 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 and SPPI.

Standard errors for PPI will be produced in spring 2021, which will include standard errors for the periods between 2019 and 2021.

Services Producer Price Indices

The Services Producer Price Indices (SPPI) provides a measure of inflation for the UK services sector. It is constructed from a statutory quarterly survey, which measures changes in the price of services provided to UK-based customers for a range of industries. Individual SPPIs are available, which provide information on price change for a selection of services industries. These individual price indices are also aggregated together to create a services industry SPPI with limited coverage (it does not provide full coverage of the “services sector”).

The services sector is estimated to account for around 80% of the UK economy based on its weight in gross domestic product (GDP). We do not produce an index for every industry in the services sector and so the SPPI is a partial, best estimate of the overall inflation to UK businesses in the services sector. The SPPIs presented in this statistical bulletin are estimated to represent 59% of the total services sector at industry level.

Standard errors for SPPI will be produced in spring 2021, which will include standard errors for the quarters between 2019 and 2021.

Guidance

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

End of EU exit transition period

As the UK enters into a new Trade and Co-operation Agreement with the EU, the UK statistical system will continue to produce and publish our wide range of economic and social statistics and analysis. We are committed to continued alignment with the highest international statistical standards, enabling comparability both over time and internationally, and ensuring the general public, statistical users and decision-makers have the data they need to be informed.

As the shape of the UK’s future statistical relationship with the EU becomes clearer over the coming period, the ONS is making preparations to assume responsibilities that as part of our membership of the EU, and during the transition period, were delegated to the statistical office of the EU, Eurostat. This includes responsibilities relating to international comparability of economic statistics, deciding what international statistical guidance to apply in the UK context and to provide further scrutiny of our statistics and sector classification decisions.

In applying international statistical standards and best practice to UK economic statistics, we will draw on the technical advice of experts in the UK and internationally, and our work will be underpinned by the UK’s well-established and robust framework for independent official statistics, set out in the Statistics and Registration Service Act 2007. Further information on our proposals will be made available later this year.

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10. Strengths and limitations

Strengths

  • These data provide users with valuable insight into the changes in the process of goods and services bought and sold by UK manufacturers.
  • Our data are very comprehensive, covering many products at a much greater level of detail than other surveys.

Limitations

  • 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.

Coronavirus in March 2021

On 23 March 2020, the UK and devolved governments announced official guidance on restrictions on 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 March 2021, was via paper questionnaires that were sent to businesses on 25 February 2021, asking to return prices that were applicable on or around 1 March 2021.

Although there has been a gradual reopening of workplaces and premises since May 2020 as a result of the lifting of the government restrictions, the response for the current period for the PPI and the Services Producer Price Index (SPPI) was lower in comparison with pre-lockdown months. For PPI, the response for March 2021 was 73.9%, down from a pre-lockdown 87.4% in February 2020; for SPPI, the response for Quarter 1 (Jan to Mar) 2021 was 73.2%, down from a pre-lockdown 85.8% in Quarter 4 (Oct to Dec) 2019. We closely monitor response rates in each publication and use statistical methods to deal with non-response.

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 Insights and Conditions Survey (BICS) and anecdotal evidence from responders to both the BICS and/or PPI surveys.

Table 8 shows the response rates to the domestic (PPI), export (Export Price Index (EPI)) and import (Import Price Index (IPI)) price surveys at time of publishing for each reference period. Response rates for the PPI show a decrease, while the response rates for IPI and EPI show an increase between February 2021 and March 2021.

The low response rates in March 2021 are 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, particularly among IPIs and EPIs. Revisions are also likely to be larger than usual over the next few months.

Table 9 shows the response rates to the SPPI survey at time of publishing for each reference period. The response rates for the SPPI shows there was a fall of 1.7 percentage points in Quarter 1 (Jan to Mar) 2021 compared with Quarter 4 (Oct to Dec) 2020.

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 (PDF, 5.87MB) and recommended by international organisations specifically for treatment of missing producer prices because of the coronavirus pandemic (PDF, 52KB).

Links to additional ONS sources of coronavirus information

Various articles have been published that help describe the ONS response to how the coronavirus might be seen in our estimates:

Our latest data and analysis on the impact of the coronavirus on the UK economy and population are also available.

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

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Manylion cyswllt ar gyfer y Bwletin ystadegol

Emelia D'Silva-Parker
business.prices@ons.gov.uk
Ffôn: +44 (0)1633 456907