The prices of goods that manufacturers deal with in the UK have been fluctuating significantly in the last months of 2024, as these prices include raw materials and fuel used in production, in addition to the prices of finished products that leave factories. In addition, quarterly estimates of the prices of services provided to customers in various sectors in the UK are monitored, which help to measure the ongoing changes in production and service costs.
One of the most notable developments in this context at the monthly level, output prices witnessed a decrease of 0.5% in September 2024, while input prices decreased by 1.0%.
In addition, the prices of producers’ outputs, known as factory gate prices, decreased by 0.7% on an annual basis until September 2024, after recording a slight increase of 0.3% in August of the same year.
On the other hand, the productive services sector witnessed a rise in prices of 3.3% in the third quarter of 2024, compared to an increase of 3.2% in the second quarter. This rise reflects the ongoing increase in service costs, which respond to various market factors.
In terms of producer price inflation rates, input prices fell by 2.3% year-on-year to September, compared to a decline of 1.0% in August. On a monthly basis, prices fell by 1.0% in September after falling by 0.3% in the previous month. Output prices have continued to decline over the past two months, reflecting the challenges facing manufacturers.
The estimates for the final months of 2024 are still provisional and are expected to be subject to subsequent revision based on new data received and verified. A continuation of this trend in prices could impact manufacturers’ production and pricing decisions, which could have a negative impact on economic growth in the UK if challenges persist.
Inflation rate decline in September and its impact on market and PPI Output
The producer price index (PPI) witnessed a decline in the annual inflation rate during September 2024, with four out of ten product groups contributing to this decline. Chemicals, paper and printing outputs had the largest impact, contributing negative percentages of 1.18 percentage points and 1.03 percentage points, respectively.
As for chemical prices, they witnessed a decline of 0.6% over the year to September 2024, compared to a larger decline of 0.9% to August. As for paper and printing, they decreased by 0.4% to September, after recording a decline of 0.7% to August. This decline in chemical and paper output prices contributed significantly to easing the overall inflationary pressure.
On the other hand, the largest upward contribution came from the “other outputs” group, which contributed 0.96 percentage points to inflation. Prices of these outputs increased by 1.7% through September 2024, compared to a 1.3% increase through August. This increase was mainly due to higher prices of soft drinks, mineral water and other bottled water, which recorded a 2.3% increase over the year through September.
As for refined petroleum and coke products, they had the largest downward contribution to the annual inflation rate in September, recording a sharp decline in prices of 22.5% through September 2024, compared to a decline of 9.3% through August. This significant decline contributed significantly to the reduction in the annual inflation rate, adding a downward effect of 1.11 percentage points.
With these price movements across the various groups, the market was able to absorb the effects of inflation significantly, which directly affected the output PPI during September 2024.
In addition, monitoring the PPIs is a vital tool for analyzing economic trends. With increasing market volatility, understanding price changes becomes essential for guiding economic policies and making investment decisions.
UK services prices rise: 3.3% to Q3
The UK saw business service prices, excluding financial and insurance services, rise by 3.3% year-on-year to Q3 2024, compared with a revised 3.2% increase in Q2 (April to June). Quarterly output prices rose by 0.5% in Q3, down from the 1.0% increase in the previous quarter. This slowdown in the quarterly growth rate reflects some of the challenges facing the services sector in the face of volatile prices and inflation.
Of the nine product groups included in the Services Producer Price Index, five contributed significantly to the annual inflation rate in Q3. Accommodation and food services and administrative and support services were the largest contributors, contributing 3.28 and 1.99 percentage points respectively to the inflation rate.
Accommodation and food services prices rose 4.9% year-on-year through Q3, down from 5.9% in Q2. This was partly due to a 6.4% increase in cafeteria prices. Administrative and support services increased 4.3% year-on-year through Q3, slightly up from 4.2% in Q2. This was due to a 4.8% increase in packaging prices.
Professional, scientific and technical services, on the other hand, contributed to lower annual inflation despite their prices rising 2.8% through Q3. This effect is due to changes in the weights introduced into the Producer Price Index in Q1. On the other hand, transportation and storage services recorded the largest upward contribution to the change in annual inflation, with prices rising 3.9% compared to 2.2% in Q2 2024.
Companies’ response to price changes also reflects the challenges they face in managing costs and profitability, which indirectly affects the overall economy.
