The October PPIs were mixed versus expectations but still leave a generally subdued trend.

Factory gate prices edged just 0.1 percent higher on the month, in line with the market consensus albeit following a firmer revised 0.6 percent increase in September. Annual output price inflation was minus 0.6 percent, down from 0.2 percent and equalling its lowest print since October 2020. Amongst the components, most monthly changes were relatively small; the steepest increase being just 0.3 percent in coke and refined petroleum products and in motor vehicles and parts and the sharpest fall being 0.4 percent in paper and paper products. Consequently, the core index also rose 0.1 percent versus September, nudging up the annual underlying rate from 0.0 percent to 0.1 percent.

At the same time, raw material and fuel costs increased a monthly 0.4 percent, double the market consensus and after an upwardly revised 0.6 percent gain in September. However, the yearly rate still dipped from minus 2.1 percent to minus 2.6 percent, a 3-month low. Crude petroleum, natural gas and metal ores (4.6 percent) again saw easily the steepest monthly gain while fuel (minus 1.6 percent) continued to record the sharpest decline.

Combined with a surprisingly well-behaved October CPI, today's PPI updates should convince the majority of BoE MPC members that policy is tight enough and should leave financial markets convinced that Bank Rate will remain at 5.25 percent next month. The October data also put the UK's RPI at minus 4 and the RPI-P at 8, meaning overall economic activity is behaving much as expected.

Output prices are expected to rise 0.1 percent on the month while input costs are seen up 0.2 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.