The April PPIs were mixed but yearly inflation rates continued to fall sharply.

Factory gate prices were flat on the month, just marginally firmer than expected and matching their downwardly revised March outturn. This trimmed annual output price inflation from 8.5 percent to 5.4 percent, equalling its lowest reading since June 2021. On the month, increases in food (0.8 percent), clothing and textiles (also 0.8 percent), metal, machinery, and equipment (0.4 percent) and other manufactured products (0.6 percent) were offset by steep falls in petroleum products (3.6 percent) and chemicals and pharmaceuticals (1.8 percent). Consequently, core prices were similarly unchanged from March which saw their annual underlying rate drop from 8.5 percent to 5.4 percent, a near-2-year low.

At the same time, raw material and fuel costs fell 0.3 percent versus March, undercutting the market consensus and reducing their yearly inflation rate from 7.3 percent to 3.9 percent, its weakest print since February 2021. Crude oil (1.0 percent) provided another monthly boost but was more than offset by falls in chemicals (1.6 percent), other produced materials (0.6 percent) and smaller declines elsewhere.

PPI inflation continues to move in the right direction but underlying rates are still firm. More generally, the UK's ECDI now stands at 3 and the ECDI-P at minus 18, the gap between the two measures underlining the recent surprising strength of domestic prices.

Output prices are seen 0.1 percent lower on the month and input costs 0.1 percent firmer.

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.