Factory gate prices were unchanged on the month in February. The outturn, which was on the soft side of expectations, put the annual rate at 2.6 percent, a 0.2 percentage point decline versus its unrevised January mark.
The main downward impact on the month came from petroleum products which saw a 1.4 percent decline. Most other categories were much less volatile although chemical and pharmaceuticals increased a relatively sharp 0.6 percent. The core index gained a monthly 0.2 percent, nudging its yearly rate a tick firmer to 2.4 percent but still in line with a broadly flat growth trend seen since last October.
Meantime, raw material and fuel costs were weak, falling 1.1 percent versus January for an annual increase of 3.4 percent, a (second successive) 1.1 percentage point drop versus the start of the year. Yearly cost inflation has now decelerated in four of the last five months and the February outturn was nearly 16 percentage points short of its mark in the same month of 2017. In large part the slide reflects the diminishing effects of sterling's Brexit-referendum inspired slump – indeed, the currency's effective exchange rate has appreciated every month since September.
The February PPI report should go down quite well at the BoE, particularly after today's favourable CPI report (see calendar entry). Even so, underlying factory gate prices are still rising at a fast enough rate to suggest that any increase in demand growth could put added upside pressure on pipeline charges. A May tightening is still probable unless upcoming inflation news is significantly weaker than expected.
Note that from next month publication of the PPIs will move from Tuesday to Wednesday.