The November PPIs were subdued albeit a little firmer than expected.

Factory gate prices dipped 0.1 percent on the month, marginally stronger than the market consensus and following a firmer revised 0.3 percent increase in October. However, annual output price inflation only edged a tick higher to minus 0.2 percent. Amongst the components, the sharpest declines were in coke and petroleum products (1.9 percent) and paper products (0.6 percent). On the upside, textiles and leather (1.2 percent) saw easily the largest gain. Consequently, the core index was only flat, reducing the annual underlying rate from 0.4 percent to just 0.2 percent.

At the same time, raw material and fuel costs fell a monthly 0.3 percent, rather less than expected but still leaving the yearly rate flat at minus 2.6 percent. Crude petroleum, natural gas and metal ores (minus 3.2 percent) posted the sharpest monthly drop ahead of fuel (1.0 percent). The only increase of note was in drink and tobacco (0.4 percent).

The November data confirm the absence of any significant inflation pressures in UK manufacturing and so bode well for further declines in the CPI rate. They also put both the UK's RPI and RPI-P at a lowly minus 35. With overall economic activity also falling well short of forecasts, financial markets may soon start to bring forward their expected first rate cut in 2024.

Output prices are expected to dip 0.2 percent on the month while input costs are seen down 0.8 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.