The December PPIs incorporate corrections to a number of basket weighs in 2021 and 2022. The scale of revisions is greater within the input PPI because one affected category - products of agriculture - is not included in the output PPI. However, revisions to annual growth rates are typically minor - less than 0.1 percentage point in many periods.

Factory gate prices were weak in December. A 0.8 percent monthly slide, the steepest since April 2020, followed a 0.1 percent dip in November and reduced annual output price inflation from 16.2 percent to 14.7 percent, a 9-month low. An 11.9 percent slump in petrol prices was mainly responsible for the overall monthly decline with the next steepest fall just 0.2 percent (in transport equipment). Elsewhere, prices were not especially volatile, the two main exceptions being food (0.8 percent) and clothing and textiles. Consequently, core prices edged 0.1 percent firmer, putting the annual underlying rate at a still very high 12.4 percent.

At the same time, raw material and fuel costs fell 1.1 percent on the month, reducing their yearly inflation rate from 18.0 percent to 16.5 percent, its lowest print since last February. Crude oil (minus 10.0 percent) was largely responsible for the drop although there were also sizeable falls in other produced materials (2.3 percent) and other parts and equipment (0.8 percent). The steepest gain was posted by fuel (0.8 percent) ahead of home food materials (0.5 percent).

Today's update shows that while underlying pipeline inflation pressures have probably peaked, they remain strong and a threat to CPI inflation. As such, there is nothing here to stop the BoE MPC raising Bank Rate again next week.

Release of the November PPI report was delayed due to problems calculating some basket components and will now be issued alongside the December data. The adjustments mean that there will be a string of back revisions so there is no real consensus available.

The Producer Price Index (PPI) measures the prices of goods bought and sold by manufacturers. The input price index measure the prices of materials and fuels purchased by manufacturers for processing. These are not limited to just those materials used in the final product, but also include what is required by the company in its normal day-to-day running. The output price index captures prices charged by manufacturers as they pass through the factory gate and excludes any VAT or similar deductible tax. Both measures may be seen as leading indicators of consumer price index (CPI) inflation although the short-term correlation is only very weak.

The PPI measures prices at the producer level before they are passed along to consumers. Since the producer price index measures prices of consumer goods and capital equipment, a portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months. A producer's price is the amount received by a producer from the purchaser of a unit of goods or services produced as output less any value added tax (VAT) or similar deductible tax, invoiced to the purchaser. It excludes any transportation charges invoiced separately by the producer.

The PPI provides a key measure of inflation alongside the consumer price indexes and GDP deflators. The output price indexes measure change in manufacturer' goods prices produced and often are referred to as factory gate prices. Input prices are not limited to just those materials used in the final product, but also include what is required by the company in its normal day-to-day operations.

The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.

The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.