Producer price inflation, UK: May 2019

• The headline rate of output inflation for goods leaving the factory gate was 1.8% on the year to May 2019, down from 2.1% in April 2019.

• The growth rate of prices for materials and fuels used in the manufacturing process was 1.3% on the year to May 2019, down from 4.5% in April 2019.

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

• The annual rate of input inflation fell 3.2 percentage points in May 2019, driven by a large downward contribution to the change in the rate 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 been launched. We would like to know what you think of our proposed changes so the consultation will remain open until 26 June 2019. We will publish our initial findings of the responses within 12 weeks of this date.

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.

The annual rate of inflation for goods leaving the factory gate (output prices) slowed from 2.1% in April 2019 to 1.8% in May 2019 (Table 1). This is the third consecutive month where the annual output rate has slowed, although it has remained positive since July 2016. The monthly rate was 0.3% in May 2019, unchanged from April 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.

Food products provided the largest upward contribution of 0.28 percentage points to the annual rate (Figure 2), with price growth of 2.0% on the year to May 2019 (Table 2). This growth was driven mainly by preserved meat and meat products, which rose 3.5% on the year to May 2019 and is the highest this sector has been since December 2017.

Other manufactured products displayed the second-largest upward contribution of 0.26 percentage points to the annual rate, with annual growth of 1.8% in May 2019. Other non-metallic mineral products were the biggest driver in this sector with price growth of 3.1% on the year.

Petroleum products provided the largest upward contribution to the monthly rate of output inflation, at 0.14 percentage points. Prices for this product group rose by 1.7% on the month in May 2019. Seven out of the ten product groups provided upward contributions to the monthly rate with only computer, electrical and optical products, and paper and printing products moving downwards. Tobacco and alcohol made no contribution either way on the month (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 April and May 2019. Most product groups displayed downward contributions to the change in the rate. The largest downward contribution of 0.22 percentage points came from petroleum products, where price growth was much slower in May 2019 than at the same time last year.

Only two industries, food products, and alcohol and tobacco products, made upward contributions to the change in the rate, at 0.06 and 0.02 percentage points respectively.

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) slowed to 1.3% in May 2019, down from 4.5% in April 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 1.9 percentage points to a flat 0.0% in May 2019 (Table 3).

The annual rate of inflation for imported materials and fuels was 0.3% in May 2019 (Table 4), which is 3.3 percentage points down from April 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 0.9% on the month (Table 4) (source: Bank of England).

All else 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.

The largest positive contribution to the annual rate in May 2019 came from fuel, which contributed 0.88 percentage points (Figure 4) and had annual price growth of 8.3% (Table 5). Annual fuel inflation has remained positive since November 2016.

Imported parts and equipment provided the second-largest contribution to the annual rate (0.32 percentage points), with annual price growth of 1.9% in May 2019.

Crude oil was the only product group to provide a negative contribution at 0.56 percentage points. This was because of an actual decrease in annual crude oil prices, which in May 2019 were 2.9% lower than they were in May 2018.

On the month there was no input price growth inflation. The rate slowed in May 2019 because of downward contributions from three industries, with fuel and imported metals being the two largest, at 0.26 and 0.16 percentage points respectively. However, these downward contributions were offset by positive contributions from five other input industries.

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 3.2 percentage points decrease in the annual rate for inputs between April and May 2019, with eight out of the nine product groups displaying downward contributions to the change in the rate. Crude oil provided the largest downward contribution of 2.1 percentage points, with imported metals and fuel also making negative contributions, at 0.44 and 0.21 percentage points respectively.

None of the input industries made positive contributions to the change in the annual rate.

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.