Producer price inflation, UK: October 2018

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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Email Martina Portanti

Dyddiad y datganiad:
14 November 2018

Cyhoeddiad nesaf:
19 December 2018

1. Main points

  • The headline rate of output inflation for goods leaving the factory gate was 3.3% on the year to October 2018, up from 3.1% in September 2018.

  • The growth rate of prices for materials and fuels used in the manufacturing process slowed to 10.0% on the year to October 2018, from 10.5% in September 2018.

  • All product groups provided upward contributions to output and input annual inflation, for the second consecutive month.

  • Petroleum and crude oil provided the largest contribution to both the annual and monthly rates of inflation for output and input inflation respectively.

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2. Things you need to know about this release

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.

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3. Producer price inflation summary

Figure 1 shows input and output Producer Price Indices (PPI) across 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. Input PPI 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 rises to its joint-highest annual rate of 2018

The annual rate of inflation for goods leaving the factory gate (output prices) rose by 0.2 percentage points to 3.3% in October 2018 (Table 1). The 12-month rate of output inflation has remained positive since July 2016. On the month, output inflation rose 0.3%.

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.

Petroleum products provided the largest upward contribution of 1.09 percentage points to the annual rate (Figure 2), driven by price growth of 15.0% on the year to October 2018 (Table 2). This growth was driven mainly by prices for diesel and gas oil, which increased to 15.8% on the year in October 2018 from 12.9% in September 2018.

Chemicals and pharmaceutical products showed the second-largest upward contribution of 0.51 percentage points to the annual rate, with a 12-month rate of 6.8% in October 2018.

The monthly rate of output inflation was 0.3%, with the largest upward contribution from petroleum products (0.14 percentage points). The monthly growth for petroleum products rose by 0.5 percentage points to 2.0% in October 2018.

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

Five product groups provided upward contributions to the 0.2 percentage points increase in the rate between September 2018 and October 2018. The largest upward movements came from petroleum, and clothing, textile and leather, at 0.20 and 0.15 percentage points respectively.

Computer, electrical and optical, and food products provided the largest downward contributions to the change in the rate, at negative 0.10 and negative 0.09 percentage points respectively.

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5. Crude oil provides the largest contribution to both the annual and monthly rate of inflation for input PPI

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) slowed to 10.0% in October 2018, down 0.5 percentage points from September 2018 (Table 3). The 12-month rate of input inflation has been positive since July 2016. The annual rate was predominantly driven by crude oil prices, which increased on the year by 41.8% in October 2018, maintaining 27 months of positive inflation for crude oil.

The one-month rate for materials and fuels was 0.8% in October 2018, down from 1.4% in September 2018 (Table 3). Crude oil provided the main positive contribution to the overall monthly rate but this was offset mainly by falls in the rates for fuels and home-produced food.

The annual rate of inflation for imported materials and fuels was 8.8% in October 2018 (Table 4), slightly down from 8.9% in September 2018. 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 0.5% on the month to 78.6 in October 2018 (Table 4), the second consecutive increase to the monthly rate after four months of negative monthly growth. In October 2018, the 12-month rate was 1.7%, up from 1.4% in September 2018.

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 upward contribution to the annual rate in October 2018 came from crude oil, which contributed 6.60 percentage points (Figure 4) and had annual price growth of 41.8% (Table 5). The upward contribution from crude oil was driven mainly by imported crude petroleum and natural gas prices, which rose 41.6% on the year.

Fuel and home-produced food (home food materials) provided the second- and third-largest contributions to the annual rate, with 1.27 and 0.58 percentage points respectively. Fuel prices rose 12.0% on the year, while prices for home-produced food rose 4.0%.

Crude oil prices were the main contributor to the monthly input inflation rate, with an upward contribution of 1.22 percentage points and a price growth of 5.8%. Imported food materials was the only other product group to have a positive monthly contribution to the rate, with the remaining seven product groups providing negative contributions.

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 0.5 percentage points drop in the annual rate for inputs between September 2018 and October 2018, with eight product groups displaying downward contributions to the change in the rate. Fuel provided the largest downward contribution of 0.28 percentage points. The second-largest downward contribution to the change in rate came from home food materials (home-produced food), at 0.20 percentage points.

Crude oil was the only product group with a positive contribution to the change in the annual rate, at 0.46 percentage points.

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7. Quality and methodology

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, a PPI standard errors article was 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.

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