Producer price inflation, UK: November 2018

• The headline rate of output inflation for goods leaving the factory gate was 3.1% on the year to November 2018, down from 3.3% in October 2018.

• The growth rate of prices for materials and fuels used in the manufacturing process slowed to 5.6% on the year to November 2018, down from 10.3% in October 2018.

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

• Crude oil provided the largest contribution to the change in the annual rate of input inflation.

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) across 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. 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) fell by 0.2 percentage points to 3.1% in November 2018 (Table 1). The 12-month rate of output inflation has remained positive since July 2016. On the month, output inflation also slowed, falling 0.1 percentage points to 0.2%.

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.

Petroleum products provided the largest upward contribution of 0.83 percentage points to the annual rate (Figure 2), driven by price growth of 11.3% on the year to November 2018 (Table 2). This growth was driven mainly by prices for diesel and gas oil, which increased by 11.1% on the year to November 2018.

Chemicals and pharmaceutical products showed the second-largest upward contribution of 0.49 percentage points to the annual rate, with a 12-month rate of 6.6% in November 2018.

The monthly rate of output inflation was 0.2%, with the largest upward contribution from tobacco and alcohol products (0.20 percentage points). The monthly growth for tobacco and alcohol products rose by 1.2 percentage points to 1.5% in November 2018, the highest the rate has been since March 2017. This was driven mainly by tobacco products, which rose 3.7% in November 2018. This increase reflects the rise in Tobacco Duty introduced in November 2018 and is the highest the rate has been since March 2014.

Petroleum was the only product group with a downward contribution to the monthly rate (0.21 percentage points), with the one-month rate falling from 2.2% in October 2018 to a negative 1.8% in November 2018.

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

Six product groups provided downward contributions to the 0.2 percentage points decrease in the rate between October 2018 and November 2018. The largest downward movement came from petroleum products, at 0.28 percentage points.

Tobacco and alcohol products provided the largest upward contribution to the change in the rate, at 0.11 percentage points.

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) slowed to 5.6% in November 2018, down 4.7 percentage points from October 2018 (Table 3). The 12-month rate of input inflation has been positive since July 2016. The annual rate was driven predominantly by crude oil prices, which showed growth of 15.5% in November 2018, although this was down from 40.4% in October 2018.

The one-month rate for materials and fuels fell 3.1 percentage points to a negative 2.3% in November 2018 (Table 3). This was also driven by inputs of crude oil, which displayed negative price growth of 11.8% on the month.

The annual rate of inflation for imported materials and fuels was 4.8% in November 2018 (Table 4), down from 8.6% in October 2018. 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 to 78.3 in November 2018 (Table 4), following two consecutive months of positive growth. In November 2018, the 12-month rate was 0.9%, down from 1.7% in October 2018.

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 November 2018 came from crude oil, which contributed 2.54 percentage points (Figure 4) and had annual price growth of 15.5% (Table 5). The positive contribution from crude oil was driven mainly by imported crude petroleum and natural gas prices, which rose 15.6% on the year, although this has fallen from 39.4% in October 2018.

Fuel provided the second-largest contribution to the annual rate (1.10 percentage points) on the back of annual growth of 10.2%.

Crude oil prices were also the main contributor to the negative monthly input inflation rate, with a downward contribution of 2.35 percentage points and negative price growth of 11.8%. This is the largest fall in the monthly crude oil rate since January 2016. In November 2018, world Brent prices fell to an average of US $62 per barrel, down from US $77 per barrel in October 2018, the lowest price since December 2017 (source: World Bank). This decrease in price is due to rising global supply.

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 4.7 percentage points drop in the annual rate for inputs between October 2018 and November 2018, with eight product groups displaying downward contributions to the change in the rate. Crude oil provided the largest downward contribution of 3.86 percentage points. The second-largest downward contribution to the change in rate came from fuel, at 0.48 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 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.