Producer price inflation, UK: March 2019

• The headline rate of output inflation for goods leaving the factory gate was 2.4% on the year to March 2019, which is unchanged from February 2019.

• The growth rate of prices for materials and fuels used in the manufacturing process was 3.7% on the year to March 2019, down from 4.0% in February 2019.

• All product groups provided upward contributions to output annual inflation.

• Fuel provided the largest upward contribution to the annual rate of input inflation, despite falling on the month.

We will be carrying out a public consultation during the summer of 2019 to collect users’ views on possible changes to the level of detail published in the Producer Price Indices (PPI), in particular the input series. Please email business.prices@ons.gov.uk with your contact details if you want to be informed about the launch of the consultation.

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 in light 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.

In March 2019, the annual rate of inflation for goods leaving the factory gate (output prices) remained unchanged from February 2019, at 2.4% (Table 1). The 12-month rate of output inflation has remained positive since July 2016. The monthly rate was 0.3%, also unchanged from February 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.

All product groups provided positive contributions to the output annual rate.

Petroleum products provided the largest upward contribution of 0.46 percentage points to the annual rate (Figure 2), due to price growth of 6.3% on the year to March 2019 (Table 2). This growth was driven mainly by prices for diesel and gas oil, which increased by 6.9% on the year to March 2019.

Other manufactured products showed the second-largest upward contribution of 0.33 percentage points to the annual rate, with annual growth of 2.3% in March 2019.

Petroleum products also provided the largest upward contribution to the monthly rate of output inflation, at 0.20 percentage points. Prices for this product group rose by 2.7% on the month in March 2019.

Figure 3 shows contributions to the change in the annual rate for factory gate prices (output prices). This month, the rate stayed the same due to several offsetting movements.

The largest upward contribution came from petroleum products at 0.25 percentage points, whilst food products and computer, electrical and optical products provided small upward contributions.

Six product groups made downward contributions to the change in the rate, the largest coming from tobacco and alcohol products at 0.11 percentage points.

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) slowed to 3.7% in March 2019, down 0.3 percentage points from February 2019 (Table 3). The 12-month rate of input inflation has remained positive since July 2016.

The one-month rate for materials and fuels fell 1.2 percentage points to a negative 0.2% in March 2019 (Table 3).

The annual rate of inflation for imported materials and fuels was 2.7% in March 2019 (Table 4), which is unchanged from February 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) rose 1.4% on the month to 79.9 in March 2019 (Table 4). This is the highest the index has been since April 2018. On the year, the ERI rose 1.0%, which follows three consecutive months of negative growth. (Bank of England).

All else equal, a stronger sterling effective exchange rate will lead to less 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.

The largest positive contribution to the annual rate in March 2019 came from fuel, which contributed 1.16 percentage points (Figure 4) and had annual price growth of 10.6% (Table 5). The positive contribution from fuel was driven mainly by prices for electricity production and distribution, which rose 16.7% on the year.

Crude oil provided the second-largest contribution to the annual rate (1.14 percentage points) with annual price growth of 6.8% in March 2019. The monthly crude oil rate also increased, although it slowed from 7.0% in February 2019 to 3.1% in March 2019. Similarly, the monthly rate for world crude oil prices slowed from 8.0% in February 2019 to 4.3% in March 2019, with prices averaging US $64 per barrel (World Bank).

Imported chemicals was the only product group to provide a negative contribution to the annual rate, at 0.15 percentage points.

Fuel prices were the main contributor to the negative monthly input inflation rate, with a downward contribution of 0.32 percentage points and negative price growth of 2.1% in March 2019. Imported chemicals, and imported parts and equipment both made downward contributions of 0.19 percentage points to the monthly rate, with negative price growth of 1.1% and 0.9% respectively. Crude oil and imported metals were the only product groups to provide positive contributions to the monthly rate.

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 0.3 percentage points decrease in the annual rate for inputs between February 2019 and March 2019, with seven out of the nine product groups displaying downward contributions to the change in the rate. Home food materials provided the largest downward contribution of 0.23 percentage points, with fuel and imported chemicals also making similar negative contributions, at 0.22 and 0.21 percentage points respectively.

The downward contributions were mostly offset by upward contributions from crude oil and imported metals, at 0.69 and 0.12 percentage points respectively.

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

• Aerospace and electronic cost indices time series data
• Producer Price Index time series data

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.