Producer price inflation, UK: January 2020

• The headline rate of output inflation for goods leaving the factory gate was 1.1% on the year to January 2020, up from 0.9% in December 2019.

• The growth rate of prices for materials and fuels used in the manufacturing process was 2.1% on the year to January 2020, up from 0.9% in December 2019.

• Petroleum products made the largest upward contribution to the change in the annual rate of output inflation.

• Imported metals provided the largest upward contribution to the change in the annual rate of input inflation.

We are carrying out a survey to find out more about our users’ views on the Producer price inflation (PPI) bulletin. Your answers to this survey – which should take less than five minutes to complete – would be invaluable. The survey will close at the end of March 2020.

The Office for National Statistics (ONS) will be implementing important methodological improvements to the Producer Price Index and Services Producer Price Index by summer 2020. These include moving from fixed-base weights to annual chain-linking, which will improve the accuracy of these statistics. At the same time, we will be introducing changes to the level of detail of the data we publish and changes to our PPI headline figure from net to gross in line with international best practice. In order to support users with the transition to the new headline definition, Section 6 includes a comparison between the existing measures of output and input PPI on a net and on a gross basis.

We will pre-announce the exact date when these changes will be implemented over the coming few months in order to give users as much notice as possible.

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.

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.

The use of core input inflation removes the more volatile indices of food, tobacco, beverages and petrol from our statistics.

Index numbers shown in the main text of this bulletin are on a net sector basis. The index for any industry relates only to transactions between that industry and other industries; sales and purchases within industries are excluded.

Indices relate to average prices for a month. The full effect of a price change occurring part way through any month will only be reflected in the following month’s index.

All index numbers exclude Value Added Tax (VAT). The Soft Drinks Industry Levy, introduced in April 2018, is also excluded. Excise Duty (on cigarettes, manufactured tobacco, alcoholic liquor and petroleum products) is included, except where labelled otherwise.

Each Producer Price Index (PPI) has two unique identifiers: a 10-digit index number, which relates to the Standard Industrial Classification 2007: SIC 2007 code appropriate to the index, and a four-character alpha-numeric code (series ID), which can be used to find series when using the time series dataset for PPI.

Figures for the latest two months are provisional, and the latest five months are subject to revisions taking account of late and revised respondent data. Revisions to seasonal adjustment factors are re-estimated every month for the seasonally adjusted series. A routine seasonal adjustment review is normally conducted in the autumn each year.

Figure 1 shows input and output Producer Price Indices (PPI) over the past 15 years. Input PPI is driven mostly by commodity prices, which tend to be more volatile over time, compared with prices for finished goods (output PPI). Input PPI is also sensitive to exchange rate movements as roughly two-thirds of inputs into the UK manufacturing sector are imported.

The annual rate of inflation for goods leaving the factory gate (output prices) increased from 0.9% in December 2019 to 1.1% in January 2020 (Table 1). This is the first time the rate has picked up for two consecutive months since October 2018. The annual rate has now remained positive for 43 consecutive months, last showing negative growth in June 2016.

On the month, the rate of output inflation was 0.3% in January 2020, up from a flat 0.0% in December 2019 and the first time since July 2019 that the index has shown positive monthly growth.

Figure 2 shows contributions by product group to the monthly and annual rate of output inflation, and Table 2 shows monthly and annual growth rates by product group.

Nine of the ten product groups provided positive contributions to the output annual rate.

Petroleum provided the largest upward contribution of 0.37 percentage points to the annual rate (Figure 2), with price growth of 4.9% on the year to January 2020 (Table 2). This is the highest the annual rate has been for petroleum since November 2018.

Computer, electrical and optical products displayed the second-largest upward contribution of 0.17 percentage points to the annual rate, with annual growth of 1.5% in January 2020.

Chemicals and pharmaceuticals was the only product group to provide a negative contribution to the annual rate, at 0.14 percentage points. This industry has provided a negative contribution to the annual rate for the last seven months.

On the month, output inflation rose 0.3%. Six product groups displayed upward contributions, with petroleum showing the largest upward contribution, at 0.15 percentage points. Food products provided the second-highest upward contribution, at 0.07 percentage points, while only two product groups: transport equipment, and tobacco and alcohol products displayed small downward contributions of 0.02 and 0.01 percentage points respectively.

Figure 3 shows contributions to the change in the annual rate for factory gate prices (output prices).

There was a 0.2 percentage point increase in the annual rate for output prices, from 0.9% in December 2019 to 1.1% in January 2020. Five of the ten product groups displayed upward contributions to the change in the rate, with petroleum products providing the largest upward contribution, at 0.27 percentage points (Figure 3). The annual rate for petroleum products was 4.9% in January 2020, up from 1.0% in December 2019.

Food products provided the second-largest positive contribution to the change in the rate, at 0.05 percentage points, with further smaller contributions coming from other manufactured products, metal, machinery and equipment, and computer, electrical and optical products.

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) was 2.1% in January 2020, up from 0.9% in December 2019. This is the third consecutive month in which the rate has picked up, and the highest the rate has been since April 2019.

The monthly rate for materials and fuels purchased was unchanged between December 2019 and January 2020 at 0.9%.

The annual rate of inflation for imported materials and fuels was 1.9% in January 2020 (Table 4), which is up 2.0 percentage points from December 2019 when it was negative 0.1%. This is the first time the annual rate has been positive since August 2019 and the highest the rate has been since April 2019.

The monthly rate rose from 0.2% in December 2019 to 1.1% in January 2020. Imported materials and fuels represent roughly two-thirds of overall materials and fuels (input prices) in terms of index weight.

The sterling effective exchange rate index (ERI) fell 0.4% on the month in January 2020, following four months of positive growth. On the year, the ERI displayed growth of 3.3% in January 2020 (source: Bank of England), down from 5.2% in December 2019.

All else being equal, a weaker sterling effective exchange rate will lead to more expensive inputs of imported materials and fuels.

Figure 4 shows contributions by product group to the monthly and annual rate of input inflation, and Table 5 shows monthly and annual growth rates by product group.

Five of the nine product groups provided positive contributions to the input annual rate.

The largest upward contribution to the annual rate in January 2020 came from crude oil, which contributed 1.8 percentage points (Figure 4) and had positive annual price growth of 11.3% (Table 5). This upward contribution was driven by imported crude petroleum, non-EU. The average price for world crude oil was US $62 per barrel in January 2020, this is up on the year by 8.9% (source: World Bank).

Imported metals provided the second-largest upward contribution to the annual rate at 1.32 percentage points, with positive price growth of 15.8%. This was driven by imported precious metals, non-EU, which had positive growth of 53.6% on the year. This is the highest the rate has been in this index since January 2017.

The largest downward contribution to the annual rate came from imported chemicals, with a contribution of 0.96 percentage points and negative price growth of 7.1%. This is the seventh consecutive month of negative annual growth in the product group.

On the month, imported metals provided the largest upward contribution of 0.72 percentage points, with prices rising 7.5% between December 2019 and January 2020.

Figure 5 shows contributions to the change in the annual rate of inflation for fuels and materials purchased by manufacturers (input prices).

The annual rate for input prices rose 1.2 percentage points from 0.9% in December 2019 to 2.1% in January 2020. Six of the nine product groups displayed upward contributions to the change in the rate.

Imported metals provided the largest upward contribution to the change in the rate, at 0.83 percentage points. The annual growth of imported metals increased 9.2 percentage points from 6.6% in December 2019 to 15.8% in January 2020. This is being driven by imported precious metals, non EU. Imported metals saw a large increase of 7.5% between December and January, compared with negative 1.0% growth in the same period 12 months ago, resulting in an upward contribution.

Other imported parts and equipment, and home food materials provided similar positive contributions to the change in the rate, at 0.31 and 0.25 percentage points respectively.

Fuel provided the largest downward contribution to the change in the rate, at 0.33 percentage points.

Producer price indices (PPIs) are measured on two different bases: gross and net of inter-sector sales. Gross sector PPIs include products sold by one business to another business classified to the same industry sector. Net sector PPIs exclude (net out) products sold by a business to another business classified to the same industry sector.

The Office for National Statistics (ONS) currently headlines with net sector PPIs, which include duty. We will move our headline to a gross sector basis excluding duty by summer 2020, in line with international best practice.

Figure 6 shows net and gross output PPIs over the past 10 years. In January 2020, the net output PPI was 116.1 while the gross output excluding duty PPI was 117.1.

As shown in Figure 7, gross and net sector output indices display similar trends over time, although the gross indices show higher volatility, particularly at times of high inflation, either positive or negative. For net output PPI, the annual growth was 1.1% in January 2020, up from 0.9% in December 2019. For gross output excluding duty PPI, the annual growth in January 2020 was 1.7%, which is up from 1.0% in December 2019.

Figure 8 shows net and gross input PPI over the past 10 years. The trends of the indices are similar, although the net input PPI appears more volatile than the gross input PPI. In January 2020, the net input PPI was 118.1 while the gross input PPI was 116.2.

Figure 9 also shows that the annual growth rates for net input PPI are more volatile than for gross input PPI. For net input PPI, the annual growth was 2.1% in January 2020, up from 0.9% in December 2019. For gross input PPI, the annual growth in January 2020 was 0.7%, up from a flat 0.0% in December 2019.

In addition to the data included within this statistical bulletin, the following detailed datasets are available:

• Aerospace and electronic cost indices time series

• Producer price inflation time series

Higher, lower and equal movements for each Producer Price Index are shown in the Producer price inflation records: monthly figures.

A summary of the revisions to PPI data are available in the PPI revision triangles:

• Producer price inflation revision triangle: total output 12-months (JVZ7)

• Producer price inflation revision triangle: total output 1-month (JVZ7)

• Producer price inflation revision triangle: total input 12-months (K646)

• Producer price inflation revision triangle: total input 1-month (K646)

Other important measures of inflation and prices include the Consumer Prices Index (CPI) and the Services Producer Price Index (SPPI).

As the UK leaves the EU, it is important that our statistics continue to be of high quality and are internationally comparable. During the transition period, those UK statistics that align with EU practice and rules will continue to do so in the same way as before 31 January 2020.

After the transition period, we will continue to produce our inflation statistics in line with the UK Statistics Authority’s Code of Practice for Statistics and in accordance with internationally agreed statistical guidance and standards.

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Producer price indices (PPI) QMI.

If you would like more information about the reliability of the data, a PPI standard errors article was published on 18 May 2018. The tables present the calculated standard errors of the PPI during the period January 2017 to December 2017, for both month-on-month and 12-month growth.

Guidance on using indices in indexation clauses (PDF, 197KB) covers producer prices, services producer prices and consumer prices.

An up-to-date manual for the PPI, including the import and export index, is now available. PPI methods and guidance (PDF, 1.18MB) provides an outline of the methods used to produce the PPI as well as information about recent PPI developments.

Gross sector basis figures, which include intra-industry sales and purchases, are shown in PPI dataset Tables 4 and 6.

The detailed input indices of prices of materials and fuels purchased by industry (PPI dataset Table 6) do not include the Climate Change Levy (CCL). This is because each industry can, in practice, pay its own rate for the various forms of energy, depending on the various negotiated discounts and exemptions that apply.