Services producer price inflation, UK: January to March 2018

• The annual rate of growth for the Services Producer Price Index (SPPI) was 1.5% in Quarter 1 (Jan to Mar) 2018, down from 1.6 in Quarter 4 (Oct to Dec) 2017.

• The price of services sold by UK companies rose 0.4% in Quarter 1 2018, unchanged from Quarter 4 2017.

• Professional, scientific and technical activities provided the largest upward contribution to the annual rate.

• Transportation and storage services provided the largest upward contribution to the quarterly rate.

Office for National Statistics (ONS) is completing changes to the Services Producer Price Index (SPPI) data collection process to improve the timeliness of this output, which will be published around two to three weeks after the end of the quarter instead of the current six-week period. This change will take place starting from the next release covering Quarter 2 (Apr to June) 2018, which will be published in July 2018. For further details of future ONS publication dates, please see the release calendar.

This quarter sees the introduction of a number of important improvements to SPPIs. These include changing the scope of the survey to measure business-to-all activity as well as expanding the survey coverage to the whole of the UK.

All of these changes are described in the November 2016 article Improvements to the Import and Export Price Indices (IPI and EPI) and Services Producer Price Indices (SPPI) and were pre-announced in the February 2018 release.

The SIC 4-digit indices within this first wave of improvements are: 49.21, 49.39, 49.41, 50.11, 50.2, 53.2, 55.1, 56.2 and 80.11.

The next wave of improvements will be announced in the July 2018 release.

The Services Producer Price Indices (SPPI) provide a measure of inflation for the UK services sector. It is constructed from a statutory quarterly survey, which measures changes in the price received for selected services provided by UK businesses to other UK businesses and government. 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 78% 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. The SPPI's coverage of the services sector at standard industrial classification (SIC) class, division and section level is available in the SPPI coverage document.

As resources allow, we will continue to review the existing indices and expand coverage through developing indices for new industries. As such, the SPPI will change composition from time to time but will always remain our best estimate of inflation in the UK services sector. The fact that coverage may change over time should be considered when deciding which indices best meet your needs.

The figures presented in this statistical bulletin are considered provisional for the latest two quarters and may be revised as late data are received.

All figures presented in this statistical bulletin are calculated on a gross sector basis unless otherwise stated and all index numbers exclude Value Added Tax (VAT). None of the indices presented in this bulletin are seasonally adjusted.

Every five years, SPPIs are rebased and their weights updated to reflect changes in industry.

The Services Producer Price Index (SPPI) has reported positive growth for most of the period across the past 10 years (Figure 1). During the economic downturn, SPPI annual growth fell from 3.7% in Quarter 2 (Apr to June) 2008 to a negative 1.6% in Quarter 3 (July to Sept) 2009 before returning to more typical growth for the remainder of the period. Since a return to positive growth in Quarter 1 (Jan to Mar) 2010, the annual rate has averaged 1.1%. The annual inflation rate in the latest quarter was above the average for the period, at 1.5%.

The Services Producer Price Index (SPPI) rose 1.5% on the year to Quarter 1 (Jan to Mar) 2018, down from an increase of 1.6% on the year to Quarter 4 (Oct to Dec) 2017 (Table 1). The price of services sold by UK companies increased 0.4% between Quarter 4 2017 and Quarter 1 2018.

Despite the slight drop in the annual rate, this has remained positive since Quarter 1 2010, whilst the quarterly rate has remained positive for five consecutive quarters following a fall of 0.1% in Quarter 4 2016.

Of the 10 sections (as defined by the Standard Industrial Classification 2007: SIC 2007) that are combined to form the Services Producer Price Index (SPPI), eight showed annual price increases, with only prices for accommodation and food services; and education services lower now than they were in Quarter 1 (Jan to Mar) 2017 (Table 2). Eight industries also showed quarterly price increases, with prices for accommodation and food services, and water supply, sewerage and waste management falling since Quarter 4 (Oct to Dec) 2017.

Repair and maintenance of motor vehicles showed the largest price increase over the quarter and on the year to Quarter 1 2018 (Table 2). The quarterly rate has increased 0.5 percentage points to 1.1% in Quarter 1 2018, while the annual rate stood at 4.0%, which represents the highest annual growth rate seen since seen since Quarter 4 (Oct to Dec) 2011.

Professional, scientific and technical activities provided the largest upward contribution to the annual rate, contributing 0.55 percentage points to the overall annual rate of 1.5% (Figure 2). Prices for professional, scientific and technical activities rose 1.9% over the year (Table 2). The main drivers to the increase in the price, came from accountancy and legal services, which both rose 3.6% on the year.

Transportation and storage services was the main contributor to the quarterly rate of 0.4%, contributing 0.20 percentage points (Figure 2). Prices within the industry increased 1.0% between Quarter 4 2017 and Quarter 1 2018, driven mainly by prices for both business air fares and business rail fares. Business air fares saw an increase of 2.8% on the quarter, and is the joint highest increase in growth over a single period in the sector since Quarter 3 (July to Sept) 2001. For further analysis on the contributions influencing growth in business airfares please see the Quarter 4 2017 publication. Prices for business rail fares also saw an increase of 2.8% on the quarter, which is the largest movement recorded for five years. The price increase is as a result of the latest annual update to Retail Price Index (RPI) inflation figures.

In addition to the data included within this statistical bulletin, the following detailed datasets are available.

Details of when the annual and monthly inflation rates were previously higher than, lower than, or at the same rate as the current quarter are shown in the Services producer price inflation (SPPI) records.

A summary of the revisions to SPPI data is available in the SPPI revision triangles.

Other important measures of inflation and prices include the Consumer Prices Index (CPI) and the Producer Price Index (PPI).

The Consumer Price Index estimates the rate at which the price of goods or services bought by households rise or fall using price indices.

The Producer Price Index measures 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).

The Services Producer Price Indices (SPPI) 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, the latest SPPI standard errors were published on 4 December 2017. The article presents calculated standard errors for the period between Quarter 1 (Jan to Mar) 2016 and Quarter 3 (July to Sept) 2017, for both quarter-on-quarter and 12-month growth. A previous SPPI standard errors article presents the calculated standard errors for the period Quarter 2 (Apr to June) 2012 to Quarter 1 (Jan to Mar) 2016.

Guidance on using indices in indexation clauses (2015) has been published. It covers producer prices, services producer prices and consumer prices.

Detailed information on the methods used to compile the SPPI is available in the SPPI manual.