Producer price inflation, UK: August 2022

• Producer input prices rose by 20.5% in the year to August 2022, down from 22.6% in the year to July 2022.

• Producer output (factory gate) prices rose by 16.1% in the year to August 2022, down from 17.1% in the year to July 2022.

• Crude oil and petroleum products provided the largest downward contributions to the change in the annual rates of input and output inflation, respectively.

• On a monthly basis, input prices decreased by 1.2% and output prices decreased by 0.1% in August 2022; this is the first time the monthly rates have been negative since August 2020 and September 2020, respectively.

The headline input and output series have been extended back to January 1984 and January 1957, respectively, using previously published data, with annual growth rates now starting in January 1985 and January 1958 (Figure 1); more information can be found in Section 7.

The annual rate of input PPI has now been positive for 21 consecutive months, although it has slowed for the second consecutive month and is down 3.7 percentage points from the record high of 24.2% in June 2022. The annual rate of output PPI has now been positive for 20 consecutive months but has slowed for the first time since May 2020.

Producer input prices decreased by 1.2% in the month to August 2022, following no change to the index in July 2022 (Table 1). This is the first time the monthly rate has been negative since August 2020 and is the fifth consecutive month that the rate has dropped following a record high of 5.0% in March 2022 (Figure 3).

The largest upward contribution to the 20.5% annual input inflation rate came from metals and non-metallic minerals, which contributed 3.89 percentage points (Figure 4). This product group had an annual price increase of 18.2% in August 2022 (Table 2), which is down from 19.6% in July 2022. This is the second consecutive month that the annual rate has slowed for this product group; this was driven by domestic steel prices with the annual rate slowing from 42.6% in July 2022 to 37.3% in August 2022.

The second largest contributor to the annual rate came from crude oil, which contributed 3.77 percentage points (Figure 4) and had an annual price increase of 68.3% in August 2022, down from 80.9% in July 2022. On the month, crude oil is providing a negative contribution because of a monthly price decrease of 10.4% (Table 2), with both rates being driven by crude petroleum.

Imported input prices decreased by 1.0% in August 2022, following a fall of 0.4% in July 2022. The annual rate slowed for the second consecutive month, from 19.8% in July 2022 to 19.2% in August 2022 (Table 3).

In the year to August 2022, the annual rate of input inflation was 20.5%; this is down 2.1 percentage points from 22.6% in July 2022.

Of the 10 product groups, seven showed downward contributions to the change in the annual rate, with crude oil providing the largest, at 0.88 percentage points (Figure 5). Crude oil saw a monthly decrease of 10.4% in price between July and August 2022, compared with a smaller decrease of 3.8% in the same period last year.

Producer output prices decreased by 0.1% in the month to August 2022, compared with a 1.6% increase in July 2022 (Table 4). This is the first time the monthly rate has been negative since September 2020.

Food products provided the largest upward contribution to the output annual rate at 4.06 percentage points (Figure 6) and had an annual price increase of 14.2% in August 2022 (Table 5). This is unchanged from July 2022 and is the joint highest the annual rate has been since records began in January 1997. This was mainly driven by preserved meat and meat products for the domestic market.

Despite providing a downward contribution to the annual rate, tobacco and alcohol products increased by 4.6% in the year to August 2022. The downward contribution is driven by the 2022 weight for this product group being lower than its weight in 2021. More information is available in our Chain-linking in business prices article and in Section 7 of this release.

The annual rate of output inflation decreased by 1.0 percentage points from 17.1% in July 2022 to 16.1% in August 2022. This is the first percentage point fall in the annual rate since May 2020, when the values fell 0.5 percentage points from negative 1.7% in April 2020 to negative 2.2% in May 2020.

Of the 10 product groups, six showed downward contributions to the change in the annual rate, with petroleum products providing the largest, at 0.53 percentage points (Figure 7).

Weight

This is the importance of the price of interest relative to other prices collected. With annual chain-linking, this is updated every year using business turnover data.

Index value

Price level in a specific basket of goods.

Annual growth rate

The annual inflation rate.

Link factor

A smoothing factor applied to create a continuous series following a weights change.

Contribution

A measure of influence that the index has on the overall growth rate. This depends on both the magnitude of the weight and the inflation rate. A positive contribution is an index that is driving a change in the annual growth rate value. Where the contribution is positive but the growth is negative, this indicates that the index is reducing the annual growth rate (for example, the growth rate would be higher if this index had a lower weight).

Producer price inflation

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).

Input prices

The input price measures the price of materials and fuels bought by UK manufacturers for processing. It includes materials and fuels that are both imported or sourced within the domestic market. It is not limited to materials used in the final product but includes what is required by businesses in their normal day-to-day running, such as fuels.

Output prices

The factory gate price (output price) is the amount received by UK producers for the goods that they sell to the domestic market. It includes the margin that businesses make on goods, in addition to costs such as labour, raw materials and energy, as well as interest on loans, site or building maintenance, or rent.

Services producer price inflation

Quarterly estimates monitoring the changes in prices charged for services provided to UK-based customers for a range of industries.

Producer price inflation (PPI) uses contributions to identify how indices influence the overall inflation rate. This section gives additional information on the calculation and how to interpret it.

Example scenarios

The following gives examples of how weight and inflation rate changes most commonly affect the contribution. In PPI, the weights usually have greater influence on the contribution as these tend to show greater change than the annual inflation rate.

• Decrease in weight and in inflation rate – contribution is negative

• Decrease in weight, increase in inflation rate – contribution is usually negative

• No change in weight or inflation rate – no change

• No change in weight, increase in inflation rate – no change

• Increase in weight, decrease in inflation rate – contribution is usually positive

• Increase in weight, no change in inflation rate – contribution is positive

• Increase in weight, increase in inflation rate – contribution is positive

Contributions are calculated using the following formula:

Quality and methodology information (QMI) on strengths, limitations, appropriate uses, and how the data were created is available in our Producer Price Index (PPI) QMI report and our Services Producer Price Indices (SPPI) QMI report.

Other useful documentation for the PPI and the SPPI are:

• Producer price indices methods changes
• Chain-linking in business prices
• Producer price weight changes
• Services producer price weight changes
• Guidance on using indices in indexation clauses (PDF, 197KB)
• PPI methods and guidance (PDF, 1.14MB)
• SPPI user guidance and methodology article
• PPI standard errors article
• SPPI standard errors article

2022 weights correction

During the routine quality assurance process, an error was identified in the 2022 weights affecting four 2-digit classification by product activity (CPA) groupings within the PPI output data. The groupings affected were:

• C11 (beverages)
• C18 (printing and reproduction services of recorded media)
• C25 (fabricated metal products, except machinery and equipment)
• C33 (repair and installation services of machinery and equipment)

These have been corrected for the August publication. The PPI inputs data were unaffected, but the PPI outputs data have seen revisions to a small number of indices. The headline rate has seen revisions of plus or minus 0.1 percentage points from February 2022 as a result of this correction. This is within the 12-month span of PPI that is subject to revision.

At a lower level of aggregation, 36 published indices have been affected by the weights correction, but the revisions have been no more than 0.1 percentage points. The following nine indices have been subject to revisions between 0.2 and 1.6 percentage points:

• G6SJ (beverages for domestic market)
• G6SS (printing and reproduction services of recorded media for domestic market)
• G6SZ (basic metals for domestic market)
• G6T3 (fabricated metal products, except machinery and equipment for domestic market)
• G778 (electricity, gas, steam and air conditioning for domestic market, excluding climate change levy)
• G77H (electricity, gas, steam and air conditioning for domestic market, including climate change levy)
• EVVW (other printing services for domestic market)
• EWJD (other fabricated metal products not elsewhere classified for domestic market)
• EWMR (installation services of industrial machinery and equipment for domestic market)

To safeguard against this error repeating in 2023, additional quality assurance steps have been implemented within the annual weights updating process.

Extension of back series

The July 2022 release saw an extension to these back series by making historical data readily available. PPI data going back to January 1957 have been stored digitally and so this publication sees the release of these index values, linked together and re-referenced to 2015 equals 100, for the headline PPI output series (GB7S).

For headline input (GHIP), this publication includes a back series to January 1984. Unlike the headline output index, the input headline was first introduced in the early 1990s, with the index data starting from 1984, hence the difference in available back series between the two headline indices.

Annual growth rates for the output and input back series are displayed in Figure 1.

The addition of these back series does not affect the methodology used to calculate our previous data to 1973. For the periods January 1957 to December 1972, we have rescaled data from a number of historical rebased series to make these comparable with our previously published data.

Sterling effective exchange rate

The sterling effective exchange rate measures changes in the strength of sterling relative to baskets of other currencies. The sterling effective exchange rate is only indicative of the rates applied to producer prices. This is because the sterling effective exchange rate is a trade-weighted index that represents all UK trade, whereas producer prices reflect transactions in the manufacturing sector.

Economic statistics governance after EU exit

Following the UK’s exit from the EU, new governance arrangements are being put in place that will support the adoption and implementation of high-quality standards for UK economic statistics. These governance arrangements will promote international comparability and add to the credibility and independence of the UK’s statistical system.

At the centre of this new governance framework will be the new National Statistician’s Committee for Advice on Standards for Economic Statistics (NSCASE) run by the UK Statistics Authority. NSCASE will support the UK by ensuring its processes for influencing and adopting international statistical standards are world leading. The advice NSCASE provides to the National Statistician will span the full range of domains in economic statistics, including the national accounts, fiscal statistics, prices, trade and the balance of payments and labour market statistics.

Strengths

These data:

• provide users with valuable insight into the changes in the prices of goods and services bought and sold by UK manufacturers

• are comprehensive, covering many products at a much greater level of detail than other surveys

• are internationally comparable with any country using the classification by product activity (CPA) or the central product classification (CPC) systems – the classification structure is available to review

• are created using a rotational sampling method to enable many new products and new respondents to be included

• are chain-linked annually to improve results in deflation by reducing substitution bias

Limitations

• Some products are produced by only a small number of manufacturers, meaning that there may not be enough manufacturers for a detailed and robust analysis, and the sector may be volatile, requiring some estimation

• The data can be revised for 12 months

• The data for the latest two months of the Producer Price Index (PPI) and two quarters of the Services Producer Price Index (SPPI) are provisional

Response rates in August 2022

The response rate for the domestic PPI shows an increase between July and August 2022, whereas the response rates for the Import Price Index (IPI) and Export Price Index (EPI) show a decrease between July and August 2022 (Table 6).