Producer price inflation, UK: February 2023

• Producer input prices rose by 12.7% in the 12 months to February 2023, down from 14.7% in the year to January 2023.

• Producer output (factory gate) prices rose by 12.1% in the 12 months to February 2023, down from 13.5% in the year to January 2023.

• Inputs of 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, producer input prices decreased by 0.1% and output prices decreased by 0.3% in February 2023.

• This month's Producer Price Index (PPI) estimates are being published with updated weights in line with the annual chain-linking methodology (see Section 5: Weights).

The annual rate of the input Producer Price Index (PPI) has now been positive for 27 consecutive months, although it has been slowing for the last eight months. The annual rate is now 11.8 percentage points below its record annual high of 24.5% in June 2022 (Figure 1).

The annual rate of the output PPI has now been positive for 26 consecutive months, but it has been slowing for the last seven months. It is down 7.7 percentage points from its recent peak of 19.8% in July 2022. The index levels for both input and output prices have been broadly stable since June 2022 after a period of rapid increase starting in 2021 and continuing into early 2022 (Figure 2). This levelling out has the effect of creating a fall in the annual inflation rate (Figure 1).

Monthly producer input prices fell by 0.1% in February 2023, following a 0.4% increase in January 2023 (Table 1). The monthly rate reached a record high of 5.1% in March 2022.

The largest upward contribution to the annual input inflation rate came from inputs of other parts and equipment, which contributed 2.80 percentage points (Figure 3). This product group saw an increase in the year to February 2023 of 9.0% (Table 2). This is unchanged from January 2023. This was mainly driven by domestic inputs of air and spacecraft and related machinery.

The second-largest contributor to the annual rate in February 2023 came from metals and non-metallic minerals, which contributed 2.24 percentage points (Figure 3). Metals and non-metallic minerals saw an increase in the year to February 2023 of 13.4%, down from 14.4% in January 2023. The annual inflation rate continues to be driven by globally high steel prices.

As indicated in our Classification review of the Energy Price Guarantee and Energy Bill Relief Scheme (EBRS) statement, the data relating to the inputs of fuel continue to reflect the impact of the EBRS. The current EBRS comes to an end on 31 March 2023, after which the Energy Bills Discount Scheme (EBDS) will take effect. We will announce next month how this will affect the Producer Price Index (PPI) once full details of the scheme are available.

Input prices of imported materials and fuels increased by 0.7% in February 2023, down slightly from an increase of 1.0% in January 2023. The annual rate was 15.1% in February 2023, down from 17.3% in January 2023 and 9.6 percentage points lower than its peak of 24.7% in October 2022 (Table 3).

In the year to February 2023, the annual rate of producer input inflation was 12.7%, down 2.0 percentage points from 14.7% in January 2023.

Of the 10 product groups, 8 showed downward contributions to the change in the annual rate, with crude oil providing the largest, at 0.90 percentage points (Figure 4). Crude oil saw a monthly decrease of 2.0% in February 2023, compared with an increase of 12.1% in February 2022.

Monthly producer output (factory gate) prices decreased by 0.3% in February 2023, following a 0.5% increase in January 2023 (Table 4).

Food products provided the largest upward contribution to the output annual rate in the year to February 2023, at 3.86 percentage points (Figure 5). This was mainly driven by condiments and seasonings, with ingredients, packaging and energy costs pushing prices up. The annual inflation rate for food products was 16.5% in the year to February 2023 (Table 5), which is down marginally from 16.6% in January 2023.

The second-largest contributor to the annual rate in the year to February 2023 came from other manufactured products, which contributed 2.60 percentage points (Figure 5) and showed an increase of 10.8% in the year to February 2023. This is down from 11.4% in January 2023. The annual increase was mainly driven by articles of concrete, cement and plaster because of ongoing high material and energy costs.

The annual rate of producer output inflation decreased by 1.4 percentage points from 13.5% in January 2023 to 12.1% in February 2023.

Of the 10 product groups, 6 show downward contributions to the change in the annual rate. Petroleum products provided the largest downward contribution to the change in the annual output rate, at 0.79 percentage points (Figure 6). Petroleum products saw a monthly decrease of 5.7% in price in February 2023, compared with an increase of 4.6% in February 2022.

This month's Producer Price Index (PPI) is being published with updated sales data in line with the annual chain-linking methodology. New weights (Tables 6 and 7) are applied to the data from December 2022, which is the link period, and therefore January 2023 values have been revised to reflect this change in weights. Further details on the methodology are available in our Chain-linking in business prices article.

The weights applied to the input PPI groupings are not updated annually, however the weights of indices contributing into these groupings have been updated as part of annual chain-linking and so contributions will differ.

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.

The Producer Price Index (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 - contribution is usually positive

• 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 indices QMI report and our Services Producer Price Inflation QMI report.

Other useful documentation for the PPI and the Services Producer Price Index (SPPI) are:

• Producer Price Indices methods changes article

• Chain-linking in business prices article

• Producer price weight changes article

• Services producer price weight changes article

• 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 2017 datasets

• UK SPPI standard errors: 2016 to 2017 article

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.

Data revisions policy

Figures for the latest two months are provisional, and the latest 12 months are subject to revisions in light of late and revised respondent data. The PPI revision policy is now in line with that of the national accounts. Published information on the revisions policy and revisions triangles shows how estimates are revised over time.

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 on the Eurostat website

• 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

The limitations are that:

• 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 February 2023

The response rate for the domestic Producer Price Index (PPI), Import Price Index (IPI) and Export Price Index (EPI) all show an increase between January and February 2023 (Table 8).