Factory gate prices were up a smaller than expected 0.1 percent on the month in January. This was their seventh successive advance but also the smallest of the sequence and soft enough to reduce annual inflation from 3.3 percent to 2.8 percent.
The minor monthly gain was mainly due to petroleum products (1.3 percent) alongside paper and printing (0.6 percent) and chemical and pharmaceuticals (also 0.6 percent). Food (minus 0.3 percent) saw the steepest decline. As a result, the core output price index gained 0.3 percent from December and was 2.3 percent higher on the year, a tick short of its annual rate last time.
Meantime, raw material costs were up 0.7 percent versus December which saw their yearly rate drop 0.7 percentage points to 4.7 percent, its lowest mark since July 2016. In large part this reflects the diminishing impact of the pound's depreciation as annual imported inflation was only 3.5 percent, a near-17 percentage point decline versus a year ago. Indeed, sterling's trade weighted index in January was 2.6 percent above its year ago level. On the month, the main boost to costs came from crude oil (4.9 percent) although this was partially offset by weaker imported food (minus 3.1 percent).
The PPIs are well enough behaved to suggest that pipeline inflation pressures in goods producing industries are not building significantly. This will not stop the BoE tightening again soon, but gradual and limited rate hikes still look the most likely scenario.