Services producer price inflation, UK: October to December 2018

• The annual rate of growth for the Services Producer Price Index (SPPI) was 1.7% in Quarter 4 (Oct to Dec) 2018, down from 1.8% in Quarter 3 (July to Sept) 2018.

• The price of services sold by UK companies rose 0.2% in Quarter 4 2018, down from 0.5% in Quarter 3 2018.

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

A number of important improvements to Services Producer Price Indices (SPPIs) will be introduced from the next release in April 2019. 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 Standard Industrial Classification (SIC) four-digit indices within this final wave of improvements are:

37, 51.11, 61.1, 62, 63, 68.2, 68.3, 69.1, 69.2, 70.22, 71.11, 71.12, 71.2, 73.12, 73.2, 74.2 and 74.3.

The 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. The SPPI's coverage of the services sector at standard industrial classification (SIC) class, division and section level is available in the SPPI user guidance and methodology article.

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. You should consider that coverage may change over time 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). SPPI annual growth fell from 2.9% in Quarter 4 (Oct to Dec) 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 returning to positive growth in Quarter 1 (Jan to Mar) 2010, the annual rate has averaged 1.2%. The annual inflation rate in the latest quarter was above the average for the period, at 1.7%.

The Services Producer Price Index (SPPI) slowed to 1.7% on the year to Quarter 4 (Oct to Dec) 2018, down from 1.8% on the year to Quarter 3 (July to Sept) 2018 (Table 1). The price of services sold by UK companies increased 0.2% between Quarter 3 2018 and Quarter 4 2018.

The annual rate has remained positive since Quarter 1 2010, whilst the quarterly rate has remained positive for eight consecutive quarters.

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), nine showed annual price increases. Only prices for water supply, sewerage waste management and remediation activities displayed negative annual price inflation.

Education showed the largest price increase on the year to Quarter 4 (Oct to Dec) 2018 at 3.5% (Table 2). The annual rate was driven by business and administration studies within adult education services.

Transportation and storage provided the largest upward contribution to the annual rate of 1.7%, contributing 0.63 percentage points (Figure 2). Prices for transportation and storage services rose 3.3% over the year (Table 2), driven by business air fares whose prices increased 6.4% on the year.

Information and communication provided the second-largest upward contribution to the annual rate (0.31 percentage points). The 12-month rate was 1.5% in Quarter 4 2018, down from 1.6% in Quarter 3 (July to Sept) 2018. Book publishing services were the main contributor to the rate with prices increasing 4.0% on the year.

Water supply, sewerage and waste provided the only downward contribution to the annual rate, negative 0.01 percentage points (Figure 2). Prices within the industry showed negative growth of 0.6% on the year. The main driver to the decrease was sorted materials recovery where prices fell 3.7% on the year.

Six industries displayed positive contributions to the quarterly price increase of 0.2%. Transportation and storage is the main contributor to the quarterly rate, contributing 0.22 percentage points (Figure 2). Prices within the industry increased 1.1% between Quarter 3 2018 and Quarter 4 2018, driven mainly by prices for freight forwarding services which increased 3.7% on the quarter. Negative growth in water supply, accommodation and food, information and technology and education services helped slow the quarterly rate from 0.5% seen in the last quarter.

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.