Producer price data for October 2025 showed easing cost pressures at the start of the supply chain, even as factory gate inflation remains firm. Input prices rose 0.5 percent over the year, a slight slowdown from 0.7 percent in September, suggesting that manufacturers are facing more moderate cost increases. The monthly decline of 0.3 percent in input costs reinforces this cooling trend and may reflect lower commodity prices or improved supply conditions.

In contrast, output prices, what leaves the factory gate, continued to rise, reaching 3.6 percent annually, up from 3.5 percent in September. This indicates that firms are still passing earlier cost pressures on to customers, or that demand remains resilient enough to support higher selling prices. The flat monthly reading, however, hints that output inflation may stabilise in the coming months.

Import prices increased 0.7 percent over the year, signalling that global cost pressures persist, although at a relatively mild pace. Overall, the latest updates suggest that while upstream cost pressures are easing, the impact on final prices is gradual, with manufacturers maintaining some pricing power amid a slowly improving cost environment. These latest updates take the RPI to minus 19 and the RPI-P to minus 31, indicating that economic activity is now below expectations for the UK economy.

Output PPI expected up 3.5 percent on year versus 3.4 percent in September.

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.