| Consensus | Actual | Previous | Revised | |
|---|---|---|---|---|
| Output - M/M | -0.4% | 0.1% | -0.3% | -0.2% |
| Output - Y/Y | -0.8% | 0.1% | 0.3% | |
| Input - M/M | 0.0% | -0.4% | -1.3% | |
| Input - Y/Y | -3.3% | -2.7% | -2.9% |
Highlights
The July PPIs were mixed.
Factory gate prices edged up 0.1 percent on the month, well above the market consensus and following a marginally shallower revised 0.2 percent drop in June. However, negative base effects helped to reduce annual output price inflation from 0.3 percent to minus 0.8 percent, its first sub-zero reading since December 2020. Monthly falls in alcohol and tobacco (1.9 percent), paper, paper products and printed material (0.4 percent) and food (0.3 percent) were more than offset by gains in coke and refined petroleum products (1.1 percent), basic metals, fabricated metal products and machinery (0.9 percent) and other outputs (0.5 percent). As a result, core prices also rose just 0.1 percent versus June, cutting their yearly rate from 3.1 percent to 2.3 percent which matched the lowest reading since April 2021.
At the same time, raw material and fuel costs unexpectedly fell again. A 0.4 percent drop on the month was their fourth straight decline and trimmed their yearly rate from a downwardly revised minus 2.9 percent to minus 3.3 percent, the weakest print since May 2020. Fuel (minus 2.4 percent) did most of the work alongside chemicals (minus 0.8 percent).
Headline PPI inflation continues to move in the right direction and underlying rates are also now much better behaved. However, as the latest CPI data make clear, inflation in services remains ominously strong and today's PPI update is unlikely to deter the BoE from raising interest rates again in September. More generally, the UK's ECDI now stands at 47 and the ECDI-P at 56. In other words, economic activity in general is running a good deal little hotter than expected.
Factory gate prices edged up 0.1 percent on the month, well above the market consensus and following a marginally shallower revised 0.2 percent drop in June. However, negative base effects helped to reduce annual output price inflation from 0.3 percent to minus 0.8 percent, its first sub-zero reading since December 2020. Monthly falls in alcohol and tobacco (1.9 percent), paper, paper products and printed material (0.4 percent) and food (0.3 percent) were more than offset by gains in coke and refined petroleum products (1.1 percent), basic metals, fabricated metal products and machinery (0.9 percent) and other outputs (0.5 percent). As a result, core prices also rose just 0.1 percent versus June, cutting their yearly rate from 3.1 percent to 2.3 percent which matched the lowest reading since April 2021.
At the same time, raw material and fuel costs unexpectedly fell again. A 0.4 percent drop on the month was their fourth straight decline and trimmed their yearly rate from a downwardly revised minus 2.9 percent to minus 3.3 percent, the weakest print since May 2020. Fuel (minus 2.4 percent) did most of the work alongside chemicals (minus 0.8 percent).
Headline PPI inflation continues to move in the right direction and underlying rates are also now much better behaved. However, as the latest CPI data make clear, inflation in services remains ominously strong and today's PPI update is unlikely to deter the BoE from raising interest rates again in September. More generally, the UK's ECDI now stands at 47 and the ECDI-P at 56. In other words, economic activity in general is running a good deal little hotter than expected.
Market Consensus Before Announcement
Output prices are seen falling 0.4 percent on the month after a 0.3 percent drop in June. Input costs are expected to be flat.
Definition
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.
Description
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.
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.
