Producer prices fall by 1.2% in June. Deflation ahead?

The output price index for sales of manufactured products fell by -1.2% in the year to June compared to a fall of -0.3% in the year to May. Input prices for materials and fuels purchased by manufacturing fell by -11 per cent in the year to June compared to a fall of just under 9% in the year to May.

The change in output prices was dominated by a near 20% fall in petroleum prices. The contributions in the changes to the total input index were headlined by a fall in Crude oil prices (-37%), imported metals down by -14.4% and home food materials down by -9.9%.

Major increases were in the areas of imported food materials (up by 7%) and imported parts and equipment (+5.6%).

The overall output price index fall of 1.2 per cent in the year to June is the lowest annual rate since December 2001, when it was also -1.2 per cent. The overall input index fall  of 11.0 per cent is the lowest annual rate since April 1997, when it fell by 11.3 per cent. 

Volatility in producer prices especially input prices levels is exacerbated by crude oil and petroleum price trends and changes in Sterling Dollar rates. The chart demonstrates the upside swings in prices which just twelve months ago peaked at over 30% and 10% for input and output  levels respectively. Current price trends are no future indicator of deflation to follow especially as the oil price is expected to hold at around $70 according to the futures market.

ONS Producer Prices June 2009

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