Factory gate prices

By DAILY MAIL REPORTER
Updated:

 

The Daily Mail city team explain why factory gate prices are important for the rest of us.

What are they?

THE Producer Price Index is a monthly survey of wholesale prices of manufactured goods. It also measures the costs of raw materials, such as oil and metals that factory owners use in their products.

Why do they matter?

The PPI can be an early indicator of where inflation is headed. If factories have to pay more for scrap metal or oil they will try to pass the higher costs on to their customers - namely retailers such as Tesco or Currys.

That will feed through to High Street prices, and thus the Consumer Price Index. This index is the measure of inflation that rate setters at the Bank of England get most worried about.

What do the figures show?

Factories have been hit by record energy and metals costs, but the pressure eased in August as oil prices reversed. The latest survey shows the biggest drop in factory gate prices since December 2004 - a fall of 0.2pc in the space of a month. This will come as a relief to the Bank of England, which is warily scanning the economy for signs of a pickup in inflation.

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