The March PPIs were on the firm side of expectations but yearly inflation rates were still well down on their respective February levels.

Factory gate prices rose just 0.1 percent on the month which, with base effects strongly negative, saw annual output price inflation slide from 11.9 percent to 8.7 percent, matching its lowest reading since September 2021. On the month, there were sharp increases in chemical and pharmaceuticals (1.4 percent) and in clothing and textiles (0.6 percent) but gains here were largely offset by a steep fall in petroleum products (3.3 percent). Most other categories were little changed. Consequently, core prices climbed 0.3 percent which saw the annual underlying rate drop from 10.2 percent to 8.5 percent, its lowest reading since November 2021.

At the same time, raw material and fuel costs rose 0.2 percent versus February which, following a revised flat performance previously, reduced their yearly inflation rate from 12.8 percent to 7.6 percent, its weakest print since March 2021. Crude oil (1.4 percent) provided a boost as did imported food materials (0.9 percent) and chemicals (0.8 percent) but there were largely offsetting declines in other produced materials (0.7 percent) and fuel (2.1 percent).

PPI inflation is moving in the right direction but monthly current rates show that underlying pipeline pressures remain uncomfortably strong. More generally, the UK's ECDI now stands at 10 and the ECDI-P at minus 13, the gap between the two measures underlining the recent surprising strength of domestic prices.

Output prices are seen dipping 0.1 percent on the month, reducing their yearly rise from 12.1 percent to 8.7 percent.

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.