Producer price inflation, UK: June 2019

• The headline rate of output inflation for goods leaving the factory gate was 1.6% on the year to June 2019, down from 1.9% in May 2019.

• The growth rate of prices for materials and fuels used in the manufacturing process fell 0.3% on the year to June 2019, down from 1.4% in May 2019.

• Petroleum provided the largest downward contribution to the change in the annual rate of output inflation.

• The annual rate of input inflation was negative for the first time since June 2016, driven by a large downward contribution from crude oil.

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) slowed from 1.9% in May 2019 to 1.6% in June 2019 (Table 1). The annual rate has remained positive since July 2016, but in June 2019 it reached its lowest rate since September 2016.

The monthly rate fell 0.1% in June 2019, down 0.4 percentage points from May 2019. This is the first time the monthly rate has been negative since December 2018.

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.

Other manufactured products provided the largest upward contribution of 0.35 percentage points to the annual rate (Figure 2), with price growth of 2.2% on the year to June 2019 (Table 2). This growth was driven mainly by other non-metallic mineral products, which rose 3.5% on the year to June 2019, unchanged from May 2019.

Computer, electrical and optical products displayed the second-largest upward contribution of 0.32 percentage points to the annual rate, with annual growth of 2.6% in June 2019.

Petroleum products was the only product group to provide a negative contribution to the annual rate, at 0.20 percentage points, falling 2.4% on the year. This is the first time there has been negative annual inflation within this product group since August 2016. This negative growth was driven mainly by prices for diesel and gas oil, which fell 3.6% on the year to June 2019.

Petroleum products provided the largest downward contribution to the monthly rate of output inflation, at 0.15 percentage points. Prices for this product group fell by 2.3% on the month in June 2019. Three other product groups (clothing, textiles and leather, tobacco and alcohol, and paper and printing products) provided smaller negative monthly contributions (Figure 2).

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

There was a 0.3 percentage point decrease in the annual output rate between May and June 2019, with seven out of ten product groups displaying downward contributions to the change in the rate. The largest downward contribution came from petroleum products, at 0.18 percentage points (figure 3).

Only two industries (computer, electrical and optical products, and other manufactured products) made small upward contributions to the change in the rate, at 0.03 and 0.01 percentage points respectively. Food products contributed no change either way.

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) fell 0.3% in June 2019, down 1.7 percentage points from May 2019 (Table 3). This negative rate of inflation follows 35 consecutive months of positive annual growth, with the last negative annual rate coming in June 2016.

The one-month rate for materials and fuels fell 1.4% in June 2019 following no growth in May 2019 (Table 3).

The annual rate of inflation for imported materials and fuels fell 0.7% in June 2019 (Table 4), which is down 1.2 percentage points from May 2019. This is the first time the annual rate has been negative since May 2016. The monthly rate also fell, dropping 1.5 percentage points to a negative 1.0% in June 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 2.0% on the month to 77.2 in June 2019. This is the lowest the index has been since December 2018 and the third consecutive month that the monthly rate has been negative. On the year, the ERI fell 1.5% (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.

The annual rate of input inflation was negative in June 2019, despite eight out of nine product groups providing positive contributions to the annual rate.

Crude oil was the only product group to provide a downward contribution to the annual rate in June 2019, with a large contribution of 2.30 percentage points (Figure 4) and negative price growth of 11.6% on the year (Table 5). This is the lowest annual rate within this industry since June 2016. This negative growth was driven mainly by imported crude petroleum and natural gas, which fell 11.0% on the year to June 2019.

All other product groups provided positive contributions to the annual rate of input inflation, with fuel the largest at 0.69 percentage points, and displaying annual price growth of 6.3% in June 2019.

Crude oil also provided the largest downward contribution to the monthly rate, at 1.92 percentage points. The monthly rate of crude oil was negative 10.7%, which is the lowest it has been since December 2018. Home food materials was the only other product group to provide a downward contribution on the month, at 0.09 percentage points.

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 1.7 percentage point decrease in the annual rate for inputs between May and June 2019, with four out of the nine product groups displaying downward contributions to the change in the rate. Crude oil provided the largest downward contribution of 1.91 percentage points, with fuel, imported chemicals, and imported metals making smaller negative contributions.

The largest positive contribution to the change in the annual rate came from imported food materials, at 0.12 percentage points.

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.