Producer price inflation, UK: September 2023 including services, July to September 2023

• Producer input prices fell by 2.6% in the year to September 2023, down from a revised fall of 2.0% in the year to August 2023.

• Producer output (factory gate) prices fell by 0.1% in the year to September 2023, up from a revised fall of 0.5% in the year to August 2023.

• On a monthly basis, producer input prices and output prices both rose by 0.4% in September 2023.

• Chemicals and petroleum products provided the largest downward contributions to the annual rates of input and output inflation, respectively.

• While annual producer price inflation rates have recently turned negative, with prices in some sectors falling, the index levels for both input and output prices remain substantially higher than their 2021 levels.

• Services producer prices rose by 3.4% in the year to Quarter 3 (July to Sept) 2023, down from a revised increase of 4.7% in the year to Quarter 2 (Apr to June) 2023.

The annual inflation rate of the input Producer Price Index (PPI) was negative for the fourth consecutive month (Figure 1).

The annual inflation rate of the output PPI was negative for the third consecutive month. However, there has been a month-on-month rise in the rate for the second consecutive month.

The index levels for both input and output prices have remained high since July 2022 (Figure 2). The small changes seen in the past few months, when compared with the broadly stable values over the past year, have created a fall in the annual inflation rate, even though the index levels remain high (Figure 1). We explain this in further detail in our Beware base effects blog post.

The annual inflation rate of producer input prices decreased by 0.6 percentage points, from a revised fall of 2.0% in the year to August 2023 to a fall of 2.6% to September 2023 (Table 1).

The monthly producer input inflation increased by 0.4% in September 2023, following an upwardly revised increase of 0.8% in August 2023 (Table 1). The figures for both August and September 2023 are provisional, therefore, they may be subject to small revisions as additional survey data are returned and validated.

The largest downward contribution to the annual input inflation rate in September 2023 came from inputs of chemicals, which contributed 1.30 percentage points (Figure 3). Overall prices in this product group fell by 7.9% in the year to September 2023 (Table 2), resulting from good availability of raw materials and lower energy costs impacting production.

Inputs of metals and non-metallic minerals, as well as inputs of crude oil, provided the second- and third-largest downward contributions, at 1.26 and 0.91 percentage points, respectively.

There were also offsetting upward contributions from some product groups. Inputs of other parts and equipment, and inputs of fuel provided the largest upward contributions, at 1.06 and 0.71 percentage points, respectively.

As indicated in our Classification review of the Energy Bills Discount Scheme statement, the data relating to the inputs of fuel now reflect the impact of the Energy Bills Discount Scheme (EBDS), which took effect from May 2023.

Of the 10 product groups for input Producer Price Index (PPI), 7 showed downward contributions to the change in the annual inflation rate, with inputs of fuel, and inputs of other parts and equipment, providing the largest, both at 0.32 percentage points (Figure 4).

Fuel prices fell by 1.8% between August and September 2023, with the annual inflation rate slowing from an increase of 25.9% in August to an increase of 18.0% in September. The annual inflation rate for other parts and equipment also slowed, from 2.3% in August to 0.8% in September.

The prices of materials and fuels imported by UK manufacturing rose by 1.4% between August and September 2023, down from a revised increase of 1.7% between July and August. As a result, the annual inflation rate fell by 4.5% in September, down from the fall of 2.0% in August, which is unchanged from from the provisional value first published last month (Table 3).

The annual inflation rate of producer output (factory gate) prices increased by 0.4 percentage points, from a revised fall of 0.5% in the year to August 2023 to a fall of 0.1% to September 2023. This was the third consecutive month that the rate has been negative, and the second consecutive rise in the annual inflation rate.

Producer output inflation increased by 0.4% in September 2023, following a rise of 0.2% in August 2023 (Table 4).

The largest downward contribution to the annual output inflation rate in September 2023 came from refined petroleum products, which contributed 2.31 percentage points (Figure 5). This product group saw a price fall of 18.8% in the year to September (Table 5), up from a 29.4% fall in the year to August.

Despite providing the second-largest downward contribution to the annual rate, prices for basic metals, fabricated metal products and machinery increased by 2.0% in the year to September 2023. The downward contribution was caused by the 2023 weight for this product group being lower than its weight in 2022. We provide more information in our Chain-linking in business prices article and in Section 5 of our Producer price inflation, UK: February 2023 bulletin.

The largest offsetting upward contribution to the annual output inflation rate in September 2023 came from other outputs from manufacturing, which contributed 0.98 percentage points.

Of the 10 product groups, 3 showed upward contributions to the change in the annual inflation rate, with petroleum products providing the largest at 1.13 percentage points (Figure 6). Smaller upward contributions came from alcoholic beverages and tobacco products, and metals.

The annual rate of inflation for services, excluding financial and insurance services, provided by UK companies, was 3.4% in Quarter 3 (July to Sept) 2023. The annual rate has slowed for the fourth consecutive quarter following the record high of 6.2% in Quarter 3 2022 (Figure 7).

The quarter-on-quarter growth of services producer prices was 0.5% in Quarter 3 2023, down from 1.5% in Quarter 2 (Apr to June) 2023 (Table 6).

The largest upward contribution to the annual rate for Services Producer Price Index (SPPI) in Quarter 3 2023 came from information and communication services, at 3.23 percentage points (Figure 8). The annual rate in Quarter 3 2023 was 2.6%, down from 3.5% in Quarter 2 2023 (Table 7). This was mainly driven by price increases in the provision of computer programming services.

The second-largest annual contribution came from professional, scientific and technical services, at 2.25 percentage points, with an annual inflation rate of 4.4% reflecting price increases in the provision of legal and accounting services.

These two product groups also provided the largest upward contributions to the quarterly rate, both at 0.17 percentage points, with quarterly price increases of 0.9% and 0.6%, respectively.

Weight

This is the importance of the price of interest relative to other prices collected. With annual chain-linking, this is updated every year using business turnover data.

Index value

Price level in a specific basket of goods.

Annual growth rate

The annual inflation rate.

Link factor

A smoothing factor applied to create a continuous series following a weights change.

Contribution

A measure of influence that the index has on the overall growth rate. This depends on both the magnitude of the weight and the inflation rate. A positive contribution is an index that is driving a change in the annual growth rate value. Where the contribution is positive but the growth is negative, this indicates that the index is reducing the annual growth rate (for example, the growth rate would be higher if this index had a lower weight).

Producer price inflation

Changes in the prices of goods bought and sold by UK manufacturers, including price indices of materials and fuels purchased (input prices) and factory gate prices (output prices).

If the producer price inflation rate is a positive value, this indicates that prices have risen, while a negative value indicates that prices have fallen.

Input prices

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 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.

Output prices

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.

Services producer price inflation

Quarterly estimates monitoring the changes in prices charged for services provided to UK-based customers for a range of industries.

Producer prices development plan

The Office for Statistics Regulation (OSR) quality report of the Producer Price Indices (PPI) was published in July 2023. The report notes the excellent progress made recently in bringing PPI in line with methodological best practice, but also highlights areas that need to be improved.

Read the full OSR report.

The producer prices development plan was published in October 2023 detailing the work that will be undertaken over the next year to improve the quality of PPI data and continue to meet user needs.

The Producer Price Index

The Producer Price Index (PPI) uses contributions to identify how indices influence the overall inflation rate. This section gives additional information on the calculation and how to interpret it.Example scenarios

The following gives examples of how weight and inflation rate changes most commonly affect the contribution. In PPI, the weights usually have greater influence on the contribution, as these tend to show greater change than the annual inflation rate:

• decrease in weight and in inflation rate -- contribution is negative

• decrease in weight, increase in inflation rate -- contribution is usually negative

• no change in weight or inflation rate -- no change

• no change in weight, increase in inflation rate -- contribution is usually positive

• increase in weight, decrease in inflation rate -- contribution is usually positive

• increase in weight, no change in inflation rate -- contribution is positive

• increase in weight, increase in inflation rate -- contribution is positive

Contributions are calculated using the following formula:

Quality and methodology information (QMI) on strengths, limitations, appropriate uses, and how the data were created is available in our Producer price indices QMI and our Services Producer Price Inflation QMI.

Other useful documentation from the Office for National Statistics for the PPI and the Services Producer Price Index (SPPI) are:

• Producer Price Indices methods changes article

• Chain-linking in business prices article

• Producer price weight changes article

• Services producer price weight changes article

• Guidance on using indices in Indexation Clauses (PDF, 197KB)

• PPI methods and guidance (PDF, 1.14MB)

• SPPI user guidance and methodology article

• PPI standard errors: 2017 datasets

• UK SPPI standard errors: 2016 to 2017 article

Sterling effective exchange rate

The sterling effective exchange rate measures changes in the strength of sterling relative to baskets of other currencies. The sterling effective exchange rate is only indicative of the rates applied to producer prices. This is because the sterling effective exchange rate is a trade-weighted index that represents all UK trade, whereas producer prices reflect transactions in the manufacturing sector.

Data revisions policy

Figures for the latest two months are provisional, and the latest 12 months are subject to revisions because of late and revised respondent data. The PPI revision policy is now in line with that of the national accounts. Published information on the revisions policy and revisions triangles shows how estimates are revised over time.

Strengths

These data:

• provide users with valuable insight into the changes in the prices of goods and services bought and sold by UK manufacturers

• are comprehensive, covering many products at a much greater level of detail than other surveys

• are internationally comparable with any country using the classification by product activity (CPA) or the central product classification (CPC) systems

• are created using a rotational sampling method to enable many new products and new respondents to be included

• are chain-linked annually to improve results in deflation by reducing substitution bias

Limitations

The limitations are that:

• some products are produced by only a small number of manufacturers, meaning that there may not be enough manufacturers for a detailed and robust analysis, and the sector may be volatile, requiring some estimation

• the data can be revised for 12 months

• the data for the latest two months of the Producer Price Index (PPI) and two quarters of the Services Producer Price Index (SPPI) are provisional

Response rates in September 2023

The response rate for the domestic PPI increased between August and September 2023, whereas the response rate for the Import Price Index (IPI) and Export Price Index (EPI) show a decrease for the same period (Table 8).

The response rate for the SPPI shows an increase between Quarter 2 (Apr to June) 2023 and Quarter 3 (July to Sept) 2023 (Table 9).