The June PPIs were on the soft side of expectations.

Factory gate prices fell 0.3 percent on the month, matching the market consensus but only after a slightly steeper revised 0.6 percent fall in May. This trimmed annual output price inflation from 2.7 percent to just 0.1 percent, its lowest reading since December 2020. Most subsectors recorded monthly losses with particularly large declines in petroleum products (1.7 percent) and metals, machinery and equipment (1.1 percent). As a result, core prices were down 0.2 percent versus May to cut their yearly rate from 3.9 percent to 3.0 percent, the lowest reading since May 2021.

At the same time, raw material and fuel costs decreased a surprisingly sharp 1.3 percent versus mid-quarter, reducing their yearly inflation rate from a downwardly revised 0.4 percent to minus 2.7 percent, the first sub-zero print since November 2020. All categories posted monthly falls, notably imported food (4.0 percent), crude oil (3.0 percent) and fuel (2.1 percent).

PPI inflation continues to move in the right direction and underlying rates are also beginning to behave themselves. However, inflation in services remains strong and today's update is very unlikely to stop the BoE raising interest rates again in August. More generally, the UK's ECDI now stands at minus 5 and the ECDI-P at 16. In other words, while recent price developments have surprised on the downside, the real economy is running a little hotter than expected.

Input costs are seen down 0.2 percent on the month and output prices 0.3 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.