Producer price inflation, UK: February 2024

• Producer input prices fell by 2.7% in the year to February 2024, up from a revised fall of 2.8% in the year to January 2024.
• Producer output (factory gate) prices rose by 0.4% in the year to February 2024, up from a revised fall of 0.3% in the year to January 2024.
• On a monthly basis, producer input prices fell by 0.4% and output prices rose by 0.3% in February 2024.
• Input and output price levels have been relatively stable since mid-2022 but remain substantially higher than their 2021 levels.
• 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 inflation rate of the input Producer Price Index (PPI) was negative 2.7% in the year to February 2024, up from a revised negative 2.8% in the year to January 2024 (Figure 1). This was the ninth consecutive month the annual rate has been negative. The monthly inflation rate fell to negative 0.4% in February 2024, after the rate in January 2024 was revised to negative 0.1% (Table 1).

The annual inflation rate of the output (factory gate) PPI was 0.4% in the year to February 2024, up from a revised negative 0.3% in the year to January 2024. It has fluctuated between 0.5% and negative 0.5% for the last nine months and is at its highest level since June 2023 (Figure 1). The monthly inflation rate rose to 0.3% in February 2024, after the rate in January 2024 was revised to show no movement (Table 1).

The index levels for both input and output prices have remained relatively stable since mid-2022 (Figure 2). The small changes seen in the past nine months have created a fall in the annual inflation rate for producer input prices, even though the index level remains high. We explain this in further detail in our Beware base effects blog post.

Estimates for both January and February 2024 are provisional, and figures for the latest 12 months are subject to revisions as additional survey data are returned and validated. Effective response rates at time of first publishing can be found in Section 9: Strengths and limitations.

We are reviewing our range of outputs and publications for PPI statistics to better suit user needs. We would welcome feedback from users on their use of PPI statistics via our user engagement survey.

Producer input prices fell by 2.7% in the year to February 2024, up from a revised fall of 2.8% in the year to January 2024. Of the 10 product groups for input Producer Price Index (PPI), 6 showed downward contributions to the annual inflation rate in February 2024. The largest of these came from inputs of chemicals, and inputs of other parts and equipment, which contributed 1.20 and 0.75 percentage points, respectively (Figure 3).

Chemical prices fell by 7.4% in the year to February 2024 (Table 2), with falls in the prices of “other organic basic chemicals”, which survey respondents noted were because of the need to secure business and remain competitive.

Despite providing the second-largest downward contribution to the annual rate, prices for other parts and equipment increased by 0.1% in the year to February 2024 (Table 2). The downward contribution was caused by the weight changes, which have just been introduced to the PPI. We provide more information in our Chain-linking in business prices article and in Section 5: Weights of this release.

In comparison, the offsetting upward contributions were small (totalling 0.51 percentage points), with inputs of fuel and other inputs providing the largest of these, at 0.34 and 0.10 percentage points, respectively.

Of the 10 product groups for input PPI, 3 made upward contributions to the change in the annual inflation rate, with inputs of crude oil providing the largest, at 0.35 percentage points (Figure 4). The annual inflation rate for this product group rose from negative 9.3% in January 2024, to negative 5.2% in February 2024.

The prices of materials and fuels imported by UK manufacturing fell by 3.9% in the year to February 2024, which is unchanged from January 2024. The monthly inflation rate was 0.5% between January 2024 and February 2024, compared with a revised fall of 0.4% between December 2023 and January 2024. The fall in annual import prices is consistent with the rise in the value of sterling in February 2024, which rose by 5.9% in the year to February 2024 (Table 3).

Producer output (factory gate) prices rose by 0.4% in the year to February 2024, up from a revised fall of 0.3% in the year to January 2024. Of the 10 product groups for output Producer Price Index (PPI), 7 made upward contributions to the annual inflation rate in February 2024. The largest of these came from petroleum products and other outputs, which contributed 1.64 and 1.15 percentage points, respectively (Figure 5).

Petroleum prices rose by 0.8% in the year to February 2024 (Table 4), which is the first month of positive annual growth since February 2023. The contribution is partly driven by weight changes, with this product group increasing in weight from 6.1% in 2023 to 7.5% in 2024 (Table 6).

In comparison, offsetting downward contributions came from chemicals and paper products, at 1.79 and 1.19 percentage points, respectively. Both of these product groups saw weight decreases between 2023 and 2024.

Of the 10 product groups for output PPI, 6 made upward contributions to the change in the annual inflation rate, with petroleum products providing the largest, at 0.61 percentage points (Figure 6). The annual inflation rate for this product group rose by 8.2 percentage points, from negative 7.4% in January 2024 to 0.8% in February 2024.

This month's Producer Price Index (PPI) is being published with updated sales data, in line with the annual chain-linking methodology. New weights are applied to the data from December 2023, which is the link period. Therefore, January 2024 values have been revised to reflect this change in weights (Table 5 and Table 6).

Input weights are not updated annually alongside output weights because of data collection challenges. However, the weights of indices contributing to these groupings have been updated as part of annual chain-linking, so contributions will differ. Further details on the methodology are available in our Chain-linking in business prices article.

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 attributed to 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). If the producer price inflation rate is a positive value, this indicates that prices have risen, while a negative value indicates that prices have fallen.

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 prices development plan

The Office for Statistics Regulation (OSR) quality report of the Producer Price Indices (PPI) was published in July 2023. The report notes the excellent progress made recently in bringing PPI in line with methodological best practice, but also highlights areas that need to be improved.

For further details, see the full OSR report.

Our Producer prices development plan was published in October 2023, detailing the work that will be undertaken over the next year to improve the quality of PPI data and continue to meet user needs.

The Producer Price Index

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, decrease in inflation rate – contribution is negative
• decrease in weight, no change in inflation rate – contribution is negative
• decrease in weight, increase in inflation rate – contribution is usually negative
• no change in weight, decrease 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 and our Services Producer Price Inflation QMI.

Other useful documentation from the Office for National Statistics 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, 1.175KB)
• SPPI user guidance and methodology
• 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 because of late and revised respondent data. The PPI revision policy is now in line with that of the national accounts. Published information on our 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
• 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 2024

The response rates for the domestic PPI, the Import Price Index (IPI) and the Export Price Index (EPI) all increased between January 2024 and February 2024 (Table 7).