The PPIs moved much as expected in August.

Factory gate prices rose 0.2 percent on the month, in line with the market consensus and following a marginally firmer revised 0.2 percent increase in July. Annual output price inflation remained negative but, at minus 0.4 percent, was up from the previous period's minus 0.7 percent. Amongst the components, the largest monthly rise was in coke and refined petroleum products (7.7 percent) which was well ahead of the next steepest gain in alcohol and tobacco (0.7 percent). Elsewhere, monthly changes were relatively small leaving the core index to dip 0.1 percent and reduce the annual underlying rate from 2.2 percent to 1.6 percent. This was the lowest yearly reading since March 2021.

At the same time, raw material and fuel costs increased a monthly 0.4 percent, just a tick short of the market consensus and their first rise since March. The yearly rate picked up from minus 3.2 percent to minus 2.3 percent, a 3-month high. Crude petroleum, natural gas and metal ores (12.1 percent) saw easily the steepest monthly gain while fuel (minus 1.9 percent) recorded the sharpest decline.

Today's PPI updates should not trouble the BoE and taken together with the surprisingly soft August CPI, will leave financial markets all the more uncertain about the outcome to tomorrow's MPC meeting. More generally, the data put UK's RPI at minus 17. This signals limited overall economic underperformance, but only due to unexpectedly weak prices. The RPI-P stands at 10, showing that the real economy is running just a little hotter than forecast.

Output prices are seen up 0.2 percent on the month with input costs climbing a sharper 0.5 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.