Producer price inflation, UK: September 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 September 2015. Crude oil continued to drive down input prices, feeding through to a drop in output prices of petroleum products

• Factory gate prices (output prices) for goods produced by UK manufacturers fell 1.8% in the year to September 2015, compared with a fall of 1.9% in the year to August 2015

• Core factory gate prices, which exclude the more volatile food, beverage, tobacco and petroleum products, rose 0.2% in the year to September 2015, compared with no movement (0.0%) in the year to August 2015

• The overall price of materials and fuels bought by UK manufacturers for processing (total input prices) fell 13.3% in the year to September 2015, up from a fall of 14.6% in the year to August 2015

• Core input prices, which exclude the more volatile food, beverage, tobacco and petroleum products fell 5.7% in the year to September 2015, compared with a fall of 6.0% in the year to August 2015

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 just those materials used in the final product, but also include what is required by the company in its normal day-to-day running.

The factory gate price (the output price) is the price of goods sold by UK manufacturers and is the actual cost of manufacturing goods before any additional charges are added, which would give a profit. It includes costs such as labour, raw materials and energy, as well as interest on loans, site or building maintenance, or rent.

Core factory gate inflation excludes price movements from food, beverage, petroleum, and tobacco and alcohol 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 the use in manufacturing, such as the actual cost of materials and fuels bought for processing.

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

Factory gate inflation fell 1.8% in the year to September 2015, compared with a fall of 1.9% last month.

The rate of both total output and core inflation has generally been falling 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 September 2015 were as follows:

• factory gate prices fell 1.8%, compared with a fall of 1.9% in the year to August 2015

• core factory gate prices rose 0.2%, compared with no movement (0.0%) in the year to August 2015

• factory gate inflation excluding excise duty fell 1.7%, unchanged from last month

Between August and September 2015:

• factory gate prices fell 0.1%, compared with a fall of 0.5% last month

• core factory gate prices rose 0.1%, compared with a fall of 0.1% last month

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 shows the monthly percentage change in price across all product groups and Figure C shows their contribution to the month factory gate inflation rate.

Factory gate prices fell 1.8% in the year to September 2015, compared with a fall of 1.9% in the year to August 2015. Prior to August 2014, there had been no fall in the annual rate since October 2009, when it fell 0.1%. The main contribution to the annual rate for September 2015 came from a fall in the price of petroleum and food products (Figure B).

The price index between August and September 2015 fell 0.1%, compared with a fall of 0.5% between July and August 2015. The majority of product groups showed very small movements except for petroleum and food products, which provided the main contributions to the fall in the monthly rate (Figure C).

Petroleum product prices fell 19.2% in the year to September 2015, compared with a fall of 18.8% in the year to August 2015. The largest decrease seen in this index was in July 2009, when it fell by 21.3%. The main contributions to the fall in the latest annual rate came from diesel and gas oil, which fell 17.9%, up from 19.3% in the year to August 2015.

Petroleum prices between August and September 2015 fell 1.2%, up from a fall of 3.8% between July and August 2015. Falling prices of motor spirit including duty made the main contribution to the fall in the monthly index

Food products fell 2.8% in the year to September 2015, up from a fall of 3.0% last month. Dairy products were the main contribution to the decrease in the year to September 2015, falling by 10.8%. The monthly index for food products fell 0.4% between August and September 2015, up from a fall of 0.5% between July and August 2015. Preserved meat and meat products were the main contribution to the fall in the monthly index.

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 0.2% in the year to September 2015, compared with no movement (0.0%) in the year to August 2015. A rise in other manufactured products offset falls in chemical and pharmaceuticals, and transport equipment in the annual index, resulting in the low growth.

The monthly index showed a rise of 0.1% between August and September 2015, compared with a fall of 0.1% between July and August 2015. Transport equipment provided the largest contribution to the rise in the index.

Since autumn 2011 when input prices rose by around 16%, the price inflation of materials and fuels purchased by UK manufacturing industry, as measured by input prices, has been falling (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 decrease rapidly. The largest fall was seen in August 2015 (14.6%) and input prices are currently falling by 13.3%. The core measure of inflation has also decreased through this period, but at a significantly slower rate, currently 5.7%.

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

• the total input price index fell 13.3%, compared with a fall of 14.6% in the year to August 2015

• the core input price index saw a fall of 5.7%, compared with a fall of 6.0% in the year to August 2015

• the price of imported materials as a whole (including crude oil) fell 13.4%, up from a fall of 14.9% in the year to August 2015 (Reference table 7 (229.5 Kb Excel sheet)).

Between August and September 2015:

• the total input price index rose 0.6%, compared with a fall of 3.0% 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 0.5%, up from a fall of 1.0% last month

Notes for Input prices: summary

1. input price indices include the Climate Change Levy which was introduced in April 2001

2. input price indices include the Aggregate Levy (13.9 Kb Pdf) 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 percentage change in the price of the main commodities groups over the month and their contributions to the total input index.

The overall input index for all manufacturing, which measures changes in the price of materials and fuels purchased by manufacturers, fell 13.3% in the year to September 2015, compared with a fall of 14.6% in the year to August 2015. The main downward contributions to the index came from crude oil, though imported metal prices also made a notable downward contribution to the annual rate.

The monthly input index rose 0.6% between August and September 2015, compared with a fall of 3.0% last month. This rise was driven by increases in the price of other imported parts and equipment, and crude oil (see Table F and Figure F).

Other imported parts and equipment prices rose 1.5% between August and September 2015, compared with a rise of 1.1% between July and August 2015. The main contributions came from imported products used in the manufacture of motor vehicles, machinery and equipment not elsewhere classified, computer, electronic and optical products, offset by decreases in fabricated metal products, excluding weapons and ammunition.

Crude oil annual prices have been falling overall since October 2013. The annual index fell 46.1% in the year to September 2015, up from a fall of 48.6% in the year to August 2015. The main contribution came from imported crude petroleum and natural gas, which fell 45.3%.

The monthly index for crude oil rose between August and September 2015 by 1.1%, compared with a fall of 15.3% between July and August 2015. The largest fall on the monthly index was between November and December 2008, when it fell by 22.3%. The increase was due to crude petroleum and natural gas, which rose 4.2% between August and September 2015, compared with a fall of 18.1% between July and August 2015.

In recent years, factors such as supply disruptions, concerns over the global economic recovery, instability in eurozone countries and the expectation of reduced demand, have all affected prices.

Imported metal prices fell 18.0% in the year to September 2015 (largest decrease since records began in 1997) down from a fall of 17.6% in the year to August 2015. The main contribution came from imported products used in the manufacture of other basic metals and casting, which fell 18.2%.

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

The core input price index, in seasonally adjusted terms, rose 0.5% between August and September 2015, compared with a fall of 1.0% last month. This index fell 5.8% in the year to September 2015, up from a fall of 5.9% in the year to August 2015.

The unadjusted index fell 5.7% in the year to September 2015, up from a fall of 6.0% last month. The monthly index rose 0.7% between August and September 2015, compared with a fall of 0.9% last month. The decrease in the annual index is driven by falls in imported metals, crude oil and imported chemicals.

Output prices

The annual percentage growth rate for the output PPI in September 2015 fell 1.8%, compared with a fall of 1.9% last month, resulting in an increase in the annual rate of 0.1%. This was due to a rise in the contribution from transport equipment primarily vehicle parts, which was partially offset by a fall in refined petroleum products (Figure G).

Input prices

The annual percentage growth rate for the input PPI in September 2015 fell 13.3%, up from a fall of 14.6% last month, resulting in an increase in the annual rate of 1.3%. This was mainly due to a rise in the contribution from crude oil with contributions from imported food, and imported parts and equipment (Figure H).

Figure I shows the year on year growth in output PPI by grouping for the latest 2 months and the range of the price changes that have been seen in these sections since January 2015. It can be seen that the majority of output PPI indices have experienced little variance in inflation during 2015. Petroleum shows the biggest decrease, ranging from falls of 20.7% in January 2015 to 14.2% in May 2015. Tobacco and alcohol shows the biggest increase, ranging from rises of 0.6% in August 2015 to 3.6% in January 2015.

Figure I: Output PPI by grouping, January to September 2015

UK

Source: Office for National Statistics

Download this image Figure I: Output PPI by grouping, January to September 2015

.png (16.8 kB)

For this bulletin Reference tables 8R and 9R (229.5 Kb Excel sheet) highlight revisions to movements in price indices previously published in last month’s statistical bulletin. These are mainly caused by changes to the most recent estimates, as more price quotes are received, and revisions to seasonal adjustment factors, which are re-estimated every month.

There are some large revisions in the all manufacturing input index caused by changes to data within domestic products used in fishing and aquaculture, and domestic products used in the manufacture of gas, distribution of gaseous fuels through mains, steam and air-con supply. The revisions are due to late data. For more information about our 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 5-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 Standard Industrial Classification (SIC) 2007.

Spreadsheets giving revisions triangles of estimates for all months from January 1998 through to August 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) (2.42 Mb Excel sheet)

• revision triangle for total output (1 month) (2.38 Mb Excel sheet)

• revision triangle for total input (12 months) (2.44 Mb Excel sheet)

• revision triangle for total input (1 month) (2.43 Mb Excel sheet)