Services producer price inflation, UK: October to December 2019

• The annual rate of growth for the Services Producer Price Index (SPPI) was 1.6% in Quarter 4 (Oct to Dec) 2019, up from 1.4% in Quarter 3 (July to Sept) 2019.

• The quarterly rate of growth for the Services Producer Price Index (SPPI) was 0.5% in Quarter 4 2019, this was unchanged from Quarter 3 2019.

• Professional, scientific and technical activities provided the largest upward contribution to both the annual and quarterly rates.

The Office for National Statistics (ONS) will be implementing important methodological improvements to the Producer Price Index and Services Producer Price Index by summer 2020. These include moving from fixed-base weights to annual chain-linking, which will improve the accuracy of these statistics; and aligning SPPI to the international Statistical Classification of Products by Activity (CPA).

We will pre-announce the exact date when these changes will be implemented over the coming few months in order to give users as much notice as possible. Detailed technical information, including impact analysis, will be made available in advance of this change.

The SPPI provides a measure of inflation for the UK services sector. It is constructed from a statutory quarterly survey, which measures changes in the price of services provided to UK-based customers for a range of industries. Individual SPPIs are available, which provide information on price change for a selection of services industries. These individual price indices are also aggregated together to create a services industry SPPI with limited coverage (it does not provide full coverage of the “services sector”).

The services sector is estimated to account for around 80% of the UK economy based on its weight in gross domestic product (GDP). We do not produce an index for every industry in the services sector and so the SPPI is a partial, best estimate of the overall inflation to UK businesses in the services sector. The SPPIs presented in this statistical bulletin are estimated to represent 59% of the total services sector at industry level. The SPPI's coverage of the services sector at Standard Industrial Classification (SIC) class, division and section level is available in the SPPI user guidance and methodology article.

As resources allow, we will continue to review the existing indices and expand coverage through developing indices for new industries. As such, the SPPI will change composition from time to time but will always remain our best estimate of inflation in the UK services sector. You should consider that coverage may change over time when deciding which indices best meet your needs.

The figures presented in this statistical bulletin are considered provisional for the latest two quarters and may be revised as late data are received.

All figures presented in this statistical bulletin are calculated on a gross sector basis unless otherwise stated and all index numbers exclude Value Added Tax (VAT). None of the indices presented in this bulletin are seasonally adjusted.

Every five years, SPPIs are rebased and their weights updated to reflect changes in industry.

The Services Producer Price Index (SPPI) has reported positive growth for most of the period across the past 10 years (Figure 1). SPPI annual growth rose from negative 0.8% in Quarter 4 (Oct to Dec) 2009 to 0.6% in Quarter 1 (Jan to Mar) 2010, before returning to more typical growth. The annual inflation rate was 1.6% in Quarter 4 2019, up from 1.4% in Quarter 3 (July to Sept) 2019.

The Services Producer Price Index (SPPI) rose to 1.6% on the year to Quarter 4 (Oct to Dec) 2019, up from 1.4% on the year to Quarter 3 (July to Sept) 2019 (Table 1). This is the highest the annual rate has been since Quarter 4 2018. The quarterly price growth of services sold by UK companies was 0.5% in Quarter 4 2019.

The annual rate has remained positive since Quarter 1 (Jan to Mar) 2010, whilst the quarterly rate has remained positive for 12 consecutive quarters.

Of the 10 sections (as defined by the Standard Industrial Classification 2007: SIC 2007) that are combined to form the Services Producer Price Index (SPPI), nine showed annual price increases, only water supply, sewerage and waste management showed negative price growth (Table 2). On a quarterly basis, five sections showed positive quarterly growth and five sections showed negative quarterly growth.

Education showed the largest price increase on the year to Quarter 4 (Oct to Dec) 2019 at 3.1%; the index has shown positive growth since Quarter 2 (Apr to June) 2018.

Professional, scientific and technical activities provided the largest upward contribution to the annual rate, contributing 0.73 percentage points (Figure 2). Prices for professional, scientific and technical activities rose 2.6% over the year (Table 2), driven by accountancy whose prices were up 6.9% on the year, up from 1.1% in Quarter 3 (July to Sept) 2019. Accountancy’s annual rate has remained positive since Quarter 4 2010 and this is the highest the rate has been since Quarter 4 2017.

Transportation and storage provided the second-largest upward contribution to the annual rate, contributing 0.31 percentage points (Figure 2). Prices for transportation and storage rose 1.6% over the year (Table 2), driven by airfares whose prices rose by 4.0% on the year, although this is down from 4.7% in Quarter 3 2019. The annual rate for airfares has remained positive since records began in 1997.

Five industries displayed positive contributions to the quarterly price increase of 0.5%. Professional, scientific and technical activities was the main contributor to the quarterly rate, at 0.42 percentage points (Figure 2). Quarterly price growth within the industry was 1.4% in Quarter 4 2019, driven mainly by prices for engineering services and related services, which rose 1.7% on the quarter – the highest the rate has been since Quarter 1 (Jan to Mar) 2012. Information and communication provided the second-largest contribution to the quarterly rate, with a contribution of 0.14 percentage points (Figure 2) and quarterly price growth of 0.8%. This was mainly driven by book publishing whose prices rose 1.6% on the quarter.

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

Details of when the annual and monthly inflation rates were previously higher than, lower than, or at the same rate as the current quarter are shown in the Services producer price inflation (SPPI) records.

A summary of the revisions to SPPI data is available in the SPPI revision triangles.

Other important measures of inflation and prices include the Consumer Prices Index (CPI) and the Producer Price Index (PPI).

The Consumer Price Index estimates the rate at which the price of goods or services bought by households rise or fall using price indices.

The Producer Price Index measures 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).

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Services producer price inflation QMI.

If you would like more information about the reliability of the data, the latest SPPI standard errors were published on 4 December 2017. The article presents calculated standard errors for the period between Quarter 1 (Jan to Mar) 2016 and Quarter 3 (July to Sept) 2017, for both quarter-on-quarter and 12-month growth. A previous SPPI standard errors article presents the calculated standard errors for the period Quarter 2 (Apr to June) 2012 to Quarter 1 2016.

Guidance on using indices in indexation clauses (2015) has been published. It covers producer prices, services producer prices and consumer prices.

Detailed information on the methods used to compile the SPPI is available in the SPPI manual.