Services producer price inflation, UK: October to December 2017

Quarterly estimates of price changes for services provided by a limited range of UK services industries to other UK businesses and government.

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Dyddiad y datganiad:
13 February 2018

Cyhoeddiad nesaf:
22 May 2018

1. Main points

  • The annual rate of growth for the Services Producer Price Index (SPPI) was 1.4% in Quarter 4 (Oct to Dec) 2017, which is up from 1.1% in Quarter 3 (July to Sept) 2017.

  • The price of services sold by UK companies rose 0.2% in Quarter 4 2017, down from 0.3% in Quarter 3 2017.

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

  • From April 2018, publication of these figures will move from Tuesday to Wednesday; the new release dates are available.

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2. Things you need to know about this release

On 15 June 2017 the National Statistician announced that routine pre-release access to Office for National Statistics (ONS) statistics would end from 1 July 2017. Following this, we have considered the dates of our publications to ensure that they continue to meet user needs. From April 2018, the prices theme day, which encompasses consumer prices, business prices and house prices, will move from a Tuesday to a Wednesday. Alongside this, labour market theme day will move from a Wednesday to a Tuesday. The new release dates and further explanation of the reasons for these changes are available in a separate article.

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.

A number of important improvements to SPPIs will be introduced from the next release in May 2018. 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). The SIC four-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 later in the year.

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.

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3. Services producer price inflation summary

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 a rise of 3.7% in Quarter 2 (Apr to June) 2008 to a decline of 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 1.4%.

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4. Annual rate of inflation for SPPI picks up in Quarter 4 2017

The Services Producer Price Index (SPPI) rose 1.4% on the year to Quarter 4 (Oct to Dec) 2017, up from an increase of 1.1% on the year to Quarter 3 (July to Sept) 2017 (Table 1). The price of services sold by UK companies increased 0.2% between Quarter 3 and Quarter 4 2017.

The annual growth rate has remained quite flat between 1.0% and 1.1% for four consecutive periods between Quarter 4 2016 and Quarter 3 2017 but has now risen to 1.4%. This is an increase of 0.3 percentage points compared with Quarter 3 2017 and is the largest increase in growth over a single period since Quarter 1 (Jan to Mar) 2016.

The quarterly rate has been positive throughout 2017 following a fall of 0.1% in Quarter 4 2016.

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5. Transportation and storage services provides the largest upward contribution to annual and quarterly rates

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), seven showed annual price increases, with prices for other services; accommodation and food; and education services lower now than they were in Quarter 4 (Oct to Dec) 2016 (Table 2). Seven industries also showed quarterly price increases, with prices for accommodation and food, and administrative and support services falling since Quarter 3 (July to Sept) 2017 and prices for other services remaining flat over the period.

Water supply, sewerage and waste management showed the largest price increases over the quarter and on the year to Quarter 4 2017 (Table 2). The quarterly rate has fallen back 1.8 percentage points to 1.0% in Quarter 4 2017, while the annual rate of 6.4% has fallen back slightly from 6.6% in Quarter 3 2017; the highest growth rate seen since Quarter 1 (Jan to Mar) 2011. The growth in this sector is largely the result of price increases for sorted materials recovery services, where prices are up 3.4% over the quarter and 26.2% on the year.

Transportation and storage services provided the largest upward contribution to the annual rate, contributing 0.43 percentage points to the overall annual rate of 1.4% (Figure 2). Prices for transport and storage services rose 2.1% over the year, driven mainly by an increase in the price of freight forwarding, which increased 5.9% (Table 2).

Transportation and storage services were also the main contributor to the quarterly rate of 0.2%, contributing 0.18 percentage points. Prices within the industry increased 0.7% between Quarter 3 2017 and Quarter 4 2017, driven mainly by prices for sea and coastal water freight, which saw a record high of 9.4% over the period.

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6. Contribution of transportation and storage to the overall SPPI annual rate and factors influencing growth since Quarter 4 2013

Figure 3 shows the annual rate of inflation within the transportation and storage services sector, over a four-year period between Quarter 4 (Oct to Dec) 2013 and Quarter 4 2017. The chart also presents the contributions to the rate by industry. The annual rate has remained positive throughout the period, reaching a peak rate of 2.1% in both Quarter 2 (Apr to June) and Quarter 4 2017.

Over the period, business airfares have provided considerable upward contributions to the annual rate for transportation and storage, as seen in Figure 3. The largest contribution in a single quarter came in Quarter 2 2017, when the price for business airfares rose 6.5% over the year. This rise contributed 0.87 percentage points to the annual rate for transportation and storage services, which at 2.1% was the highest seen since Quarter 2 2011.

Factors influencing the recent rise in the price of business airfares include a rise in the price of crude oil, a raw material used in the production of aviation fuel. According to the World Bank, the average cost of a barrel of crude oil increased 23.4% between 2016 and 2017.

Freight forwarding has been the most volatile sector throughout the period. Following 10 consecutive quarters of downward contributions to the annual rate of transportation and storage services, we have seen six consecutive quarters of positive contributions between Quarter 3 (July to Sept) 2016 and Quarter 4 (Oct to Dec) 2017. The contribution was at its highest in Quarter 2 2017, contributing 0.97 percentage points, when the annual rate of inflation for freight forwarding stood at 7.8%.

The annual average index for freight forwarding in 2017 is now the highest seen since our records began in 1996. The increase could be partially attributed to a weakening of sterling following the EU referendum in June 2016, as the cost of fuel rose, which is an important input to the cost of freight forwarding. The Bank of England reported that in December 2017, the sterling effective exchange rate, a trade-weighted currency index, remained 7.7% lower than it was in June 2016. Future uncertainty regarding the UK leaving the European Union is also likely to affect investment and contribute to rising prices, according to the Freight Transport Association (FTA) in their Logistics Report 2017.

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8. Quality and methodology

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.

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