Producer price inflation, UK: May 2015

• The price of goods bought and sold by UK manufacturers, as estimated by the producer price index, continued to fall in the year to May 2015, with petroleum and crude oil being the main drivers

• The output price index for goods produced by UK manufacturers (factory gate prices) fell 1.6% in the year to May 2015, compared with a fall of 1.7% in the year to April 2015

• Factory gate prices rose 0.1% between April and May 2015, unchanged since March 2015

• Core factory gate prices, which exclude the more volatile food, beverage, tobacco and petroleum products, rose 0.1% in the year to May 2015, unchanged since March 2015

• The overall price of materials and fuels bought by UK manufacturers for processing (total input prices) fell 12.0% in the year to May 2015, down from a fall of 11.0% in the year to April 2015

• Total input prices fell 0.9% between April and May 2015, compared with a rise of 1.4% last month

The producer price index (PPI) is a monthly survey that measures the price changes of goods bought and sold by UK manufacturers and provides an important measure of inflation, alongside other indicators such as the consumer price index (CPI) and services producer price index (SPPI). This statistical bulletin contains a comprehensive selection of data on input and output index series and also contains producer price indices of materials and fuels purchased and output of manufacturing industry by broad sector.

The output price indices measure change in the prices of goods produced by UK manufacturers (these are often called factory gate prices).

The input price indices measure change in the prices of materials and fuels bought by UK manufacturers for processing. These are not limited to materials used in the final product, but also include what is required by the company in its normal day-to-day running.

Imported price indices (IPIs) are a series of economic indicators that measure change in the prices of goods and raw materials imported into the UK. IPIs are a main component of input price indices.

Exported price indices (EPIs) are a series of economic indicators that measure change in the prices of goods manufactured in the UK but destined for export markets.

The factory gate price (the output price) reflects the total price received by the manufacturer for a particular product. It includes costs such as labour, raw materials and energy, as well as interest on loans, site and building maintenance or rent.

Core factory gate inflation excludes price movements from food, beverage, tobacco and alcohol, and petroleum products, which tend to have volatile price movements. It should give a better indication of the underlying output inflation rates.

The input price is the cost of goods bought by UK manufacturers for use in manufacturing, such as the actual cost of materials and fuels bought for processing.

Core input inflation strips out purchases from the more volatile food, beverage, tobacco and alcohol, and petroleum industries to give an indication of the underlying input inflation pressures facing the UK manufacturing sector.

Factory gate inflation fell 1.6% in the year to May 2015, up from a fall of 1.7% in the year to April 2015. This is the eleventh consecutive fall in the annual rate of output inflation.

The rate of both total output and core inflation has generally been reducing since autumn 2011 when output inflation reached its post-economic downturn high of 5.3% in September 2011. During this period, core factory gate inflation has tended to run at a lower rate and show a smaller degree of volatility than total output. However, since January 2014, core output price inflation has been running at a slightly higher rate than total output: a result of the downward pressures from petroleum which is excluded from the core measure of inflation (Figure A).

Looking at the latest estimates (Table A), movements in factory gate prices over the 12 months to May 2015 were as follows:

• factory gate prices fell 1.6%, compared with a fall of 1.7% in the year to April 2015

• core factory gate prices rose 0.1%, unchanged since March 2015

• factory gate inflation excluding excise duty fell 1.3%, compared with a fall of 1.4% in the year to April 2015

Between April and May 2015:

• factory gate prices rose 0.1%, unchanged since March 2015

• core factory gate prices showed no movement, unchanged since February 2015

Table B shows the annual percentage change in price across all product groups and Figure B shows their contribution to the annual factory gate inflation rate. Table C and Figure C show the same information, but for the monthly factory gate inflation rate.

Factory gate prices fell 1.6% in the year to May 2015, compared with a fall of 1.7% in the year to April 2015: the eleventh consecutive fall on the index. Prior to July 2014, there has been no fall in the annual rate since October 2009, when it fell 0.1%. The main contributions to the annual rate for May 2015 came from a fall in the price of petroleum and food products (Figure B).

The price index between April and May 2015 rose 0.1%, unchanged since March 2015. The majority of sections showed very small movements, resulting in the low monthly rate (Figure C).

Petroleum product prices fell 14.3% in the year to May 2015, up from a fall of 16.1% in the year to April 2015. The main contributions to the fall in the annual rate came from diesel and gas oil. Diesel and gas oil prices fell by 12.5% in the year to May 2015.

Petroleum prices rose 2.0% between April and May 2015, up from a rise of 0.6% between March and April 2015. Diesel and gas oil prices were the main contribution to the rise in the monthly index, increasing by 2.1% between April and May 2015, followed by unleaded petrol which rose 2.2%.

Food product prices fell 3.4% in the year to May 2015, down from a fall of 3.1% in the year to April 2015. This was mainly due to a fall in the price of dairy products, which fell 12.8% in the year to May 2015, up from a fall of 15.7% in the year to April 2015. Since October 2014, dairy products have seen record falls (data back to 1997). This is the result of falls in the price of processed liquid milk, which fell 20.0% in the year to May 2015. The highest recorded fall for processed liquid milk was in March 2015 when it fell 25.4% (data back to 2008).

Core factory gate inflation

Core factory gate prices, which exclude the more volatile food, beverage, tobacco and petroleum product prices, giving a measure of the underlying factory gate inflation, rose 0.1% in the year to May 2015. On the monthly index, there has been no movement (0%) between February and May 2015.

Since autumn 2011, price inflation of materials and fuels purchased by UK manufacturing industry, as measured by input prices, fell quite rapidly from annual inflation of around 16% to deflation (prices lower than they were in the same month of the previous year) of around 2% in the middle of 2012 (Figure D). Input price inflation showed a steady but fairly slow increase from October 2012 to July 2013, when it reached 4.7%. From November 2013, prices started to fall with input prices currently falling by 12.0%. Over this period, core input inflation (purchases by manufacturing industries other than the more volatile food, beverage, tobacco and petroleum industries) fell at similar levels.

Looking at the latest data (Table D), the main movements in the year to May 2015 were as follows:

• the total input price index fell 12.0%, compared with a fall of 11.0% in the year to April 2015

• the core input price index saw a fall of 3.4%, compared with a fall of 3.7% last month

• the price of imported materials as a whole (including crude oil) fell 11.3%, down slightly from a fall of 11.2% last month

Between April and May 2015:

• the total input price index fell 0.9%, compared with a rise of 1.4% last month (Table D)

• in seasonally adjusted terms, (see Table D) the input price index for the manufacturing industry excluding the food, beverage, tobacco and petroleum industries rose 0.2%, unchanged from last month

Notes for input prices: summary

1. These indices include the Climate Change Levy (CCL) which was introduced in April 2001

2. These indices include the Aggregates Levy which was introduced in April 2002

Table E and Figure E show the percentage change in the price of the main commodities groups over the year and their contributions to the total input index. Table F and Figure F show the same for the monthly input prices.

The overall input index for all manufacturing, which measures changes in the price of materials and fuels purchased by manufacturers, fell 12.0% in the year to May 2015, compared with a fall of 11.0% in the year to April 2015. The main downward contributions to the index came from crude oil (down 37.2% in the year to May 2015) and home-produced food (down 14.0% in the year to May 2015).

The monthly input index fell 0.9% between April and May 2015, compared with a rise of 1.4% last month. This fall was driven by a decrease in the price of home-produced food, which fell by 6.9% between April and May 2015. This was partially offset by crude oil, which rose 2.4% (see Table F and Figure F).

Crude oil prices fell 37.2% in the year to May 2015, up from a fall of 38.2% last month. Despite annual prices falling overall in the last 12 months, crude oil prices increased by 2.4% between April and May 2015; down from a rise of 2.9% between March and April 2015. Weak demand, combined with a strong supply growth, has led to a build up of excess supply. This has been helped by increased output from various countries including China and Russia, leading to a drop in the annual rate.

Home-produced food prices fell by 14.0% in the year to May 2015, down from a fall of 4.5% in the year to April 2015. The monthly rate for home-produced food fell 6.9% between April and May 2015, after a rise of 11.0% in the previous month. The main contribution to both the annual and monthly rates came from home produced root crops, specifically early ware potatoes. This large effect is due to the fact that these are very seasonal items, unavailable through the majority of the year and priced at a premium at the beginning of their short growing season.

Core input price index (excluding purchases from the food, beverage, tobacco and petroleum industries)

The core input price index, in seasonally adjusted terms, rose 0.2% between April and May 2015, unchanged from last month. The unadjusted index fell 0.2% between April and May 2015, compared with a fall of 0.3% last month.

This additional section of the PPI statistical bulletin introduces some new charts to explain contributions to the change in the PPI rate of inflation. They are currently being published in a separate section for clarity and as an opportunity for users to provide feedback.

Output Prices

The annual percentage growth rate for the output PPI in May was -1.6%, up from -1.7% last month, resulting in a change in the annual rate of 0.1% between April and May. The main contributions to this change in the rate come from petroleum products and other manufactured products (Figure G). Petroleum product prices fell 14.3% in the year to May, up from a fall of 16.1% in the year to April and other manufactured product prices rose 1.3% in the year to May, up from 0.5% last month. For other manufactured products, the main contribution to this increase in the annual rate came from installation services of machinery and equipment.

Input Prices

The annual percentage growth rate for the input PPI in May was -12.0%, down from -11.0% last month, resulting in a change in the annual rate of -1.0% between April and May. The main contribution to this change in the rate came from home produced food where prices fell by 14.0% in the year to May, down from a fall of 4.5% last month (Figure H).

For this bulletin reference tables 8R and 9R (99.4 Kb Excel sheet) highlight revisions to movements in price indices previously published in last month’s statistical bulletin. Revisions are generally a result of changes to the most recent estimates, as more price quotes are received, and revisions to seasonal adjustment factors, which are re-estimated every month.

The output headline figure has small revisions, but the headline figure for input has larger than normal revisions, which were mainly caused by late data and revised data for seasonal crops, in particular early ware potatoes. For more information about the revisions policy see our website.

Revisions to data provide one indication of the reliability of main indicators. Table G shows summary information on the size and direction of the revisions which have been made to the data, covering a five-year period. A statistical test has been applied to the average revision to find out if it is statistically significantly different from zero. An asterisk (*) shows that the test is significant.

Table G presents a summary of the differences between the first estimates, published between 2007 and 2015, and the estimates published 12 months later. These numbers include the effect of the reclassification onto the Standard Industrial Classification (SIC) 2007.

Spreadsheets giving revisions triangles of estimates for all months from January 1998 through to April 2015 and the calculations behind the averages in the table, are available in the reference table area of our website:

• revision triangle for total output (12 months) (2.37 Mb Excel sheet)

• revision triangle for total output (1 month) (2.33 Mb Excel sheet)

• revision triangle for total input (12 months) (2.38 Mb Excel sheet)

• revision triangle for total input (1 month) (2.37 Mb Excel sheet)