The July PPIs were mixed but still point to subdued pipeline inflation pressures in manufacturing.

Factory gate prices were only flat on the month and slightly short of the market consensus. Following a steeper revised 0.7 percent fall in June, this saw the annual inflation rate ease further from 1.0 percent to 0.8 percent, a 4-month low. On the month, prices fell sharply for alcohol and tobacco (1.0 percent) and coke and petroleum products (0.5 percent) but there were largely offsetting gains in textiles and clothing (0.6 percent) and chemicals (0.4 percent). Consequently, core prices were also unchanged, trimming the underlying yearly rate by a tick to 1.0 percent.

At the same time, raw material and fuel costs dipped 0.1 percent versus June, a couple of ticks less than expected. Positive base effects lifted yearly inflation from 0.0 percent to 0.4 percent, its first print above zero since May 2023. Prices of crude petroleum, natural gas and metal ores rose 1.3 percent and imported food 1.4 percent but there were falls in beverages and tobacco (0.7 percent), domestic food (0.8 percent) and in a number of other categories.

Today's report offers another reminder that even though manufacturing seems to be on the turn, inflation in the sector is yet not an issue to worry the BoE MPC. Today's inflation updates data put the UK's RPI at 11 and the RPI-P at 36, meaning that economic activity in general is running somewhat ahead of market forecasts.

Output prices are expected to rise 0.1 percent on the month while input costs drop 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.