Producer price inflation, UK: July 2019

• The headline rate of output inflation for goods leaving the factory gate was 1.8% on the year to July 2019, up from 1.6% in June 2019.

• The growth rate of prices for materials and fuels used in the manufacturing process was 1.3% on the year to July 2019, up from 0.3% in June 2019.

• Computer, electrical and optical products provided the largest upward contribution to the annual rate of output inflation.

• Fuels provided the largest upward contribution to the annual rate of input inflation.

The public consultation to collect users’ views on possible changes to the level of detail published in the Producer Price Indices (PPI) has now closed. We will publish our initial findings of the responses by 18 September 2019.

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 also 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 1.6% in June 2019 to 1.8% in July 2019 (Table 1) which follows four months of slowing annual growth. The annual rate has remained positive since July 2016.

The monthly rate was 0.3% in July 2019, up 0.4 percentage points from June 2019.

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.

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

Computer, electrical and optical products provided the largest upward contribution of 0.36 percentage points to the annual rate (Figure 2), with price growth of 3.3% on the year to July 2019 (Table 2). This is the highest the annual rate has been within this industry since July 2017.

Transport equipment displayed the second-largest upward contribution of 0.35 percentage points to the annual rate, with annual growth of 3.0% in July 2019.

Petroleum products and chemicals and pharmaceuticals were the only product groups to provide a negative contribution to the annual rate, at 0.05 and 0.04 percentage points respectively.

Transport equipment provided the largest upward contribution to the monthly rate of output inflation, at 0.16 percentage points. Prices for this product group rose by 1.2% on the month in July 2019 which is the highest the rate has been since July 2016.

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 output rate between June and July 2019, with six out of ten product groups displaying upward contributions to the change in the rate. Petroleum products and transport equipment both provided the largest upward contributions to the change in the rate, at 0.08 percentage points (figure 3).

Chemicals and pharmaceuticals was the only product group to provide a downward contribution to the change in the rate, at 0.03 percentage points. Tobacco and alcohol, paper and printing products, and metal, machinery and equipment contributed no change either way.

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) was 1.3% in July 2019, up 1.0 percentage points from June 2019 (Table 3). Following an upward revision to the annual rate for June 2019 (from negative 0.3% to 0.3%), the 12-month rate of input inflation has now remained positive since July 2016. This standard revision is mainly due to amended crude oil figures received from the Department for Business, Energy and Industrial Strategy.

The one-month rate for materials and fuels increased to 0.9% in July 2019 following negative growth of 0.8% in June 2019 (Table 3).

The annual rate of inflation for imported materials and fuels was 0.3% in July 2019 (Table 4), which is up 0.4 percentage points from June 2019. The monthly rate also increased, rising 1.4 percentage points to 1.0% in July 2019. 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 1.4% on the month to 76.1 in July 2019. This is the lowest the index has been since October 2016 and the fourth consecutive month where the monthly rate has fallen. On the year, the ERI fell 2.6% which is the largest annual drop since August 2017 (source: Bank of England).

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.

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

The largest positive contribution to the annual rate in July 2019 came from fuel, which contributed 1.10 percentage points (Figure 4) and had annual price growth of 10.2% (Table 5). Annual fuel inflation has remained positive since November 2016. This growth was mainly driven by electricity production and distribution, which increased 20.1% on the year to July 2019, the highest the rate has been since records began in 2009.

Imported metals provided the second-largest contribution to the annual rate (0.45 percentage points), with annual price growth of 5.3% in July 2019.

Crude oil provided the largest downward contribution to the annual rate, at 1.26 percentage points. Crude oil prices were 6.5% lower in July 2019 than they were in July 2018. Imported chemicals provided a smaller downward contribution of 0.02 percentage points.

On the month, crude oil provided the largest positive contribution of 0.30 percentage points with monthly growth of 1.8%. This is a 9.3 percentage points increase following negative growth of 7.5% in June 2019.

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

There was a 1.0 percentage point increase in the annual rate for inputs between June 2019 and July 2019, with only three out of the nine product groups displaying upward contributions to the change in the rate. Fuel provided the largest upward contribution of 0.43 percentage points, with crude oil and imported metals making similar positive contributions of 0.42 percentage points.

Home food materials and imported chemicals both provided the largest negative contribution to the change in the annual rate, at 0.08 percentage points. Four other product groups provided smaller negative contributions.

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 Index 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).

The Producer Price Index (PPI) Quality and Methodology Information report contains important information on:

• the strengths and limitations of the data and how it compares with related data

• uses and users of the data

• how the output was created

• the quality of the output including the accuracy of the data

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.