Tue Mar 03 04:00:00 CST 2015

Consensus Actual Previous Revised
Month over Month -0.7% -0.9% -1.0%
Year over Year -3.3% -3.4% -2.7% -2.6%

Excluding construction producer prices fell a sharper than expected 0.9 percent on the month in January. The latest fall followed an unrevised 1.0 percent drop in December and reduced annual PPI inflation from minus 2.6 percent to minus 3.4 percent, its weakest print since November 2009.

Energy costs were down a further 3.2 percent versus year-end when they declined 3.1 percent and now stand 10.2 percent below their level in January 2014. Excluding this category prices were off a much more modest 0.2 percent on the month but, at minus 0.7 percent, the annual core rate still slid 0.3 percentage points beneath its December's mark.

Elsewhere prices were mixed. Hence monthly decreases in intermediates (0.5 percent) and consumer non-durables (0.2 percent) contrasted with rises in capital goods (0.2 percent) and consumer durables (0.3 percent). Indeed, both capital goods (0.7 percent) and consumer durables (1.0 percent) still show positive yearly rates.

Regionally national PPIs saw monthly declines in most member states. The steepest was in the Netherlands (3.6 percent) ahead of Lithuania (3.1 percent) and Ireland (2.6 percent). Luxembourg and Malta (both just 0.1 percent) recorded the only increases.

Headline Eurozone producer prices have fallen for four straight months now and in six of the last seven. This should all but guarantee a continued weak outlook for the HICP through at least the first half of 2015. Even so, prices in some sectors are still making headway and if economic growth does begin to pick-up, inflation expectations could be close to bottoming.

The producer price index (PPI) is a measure of the average trading price of products and covers manufacturing, mining and quarrying and electricity, gas and water supply. The index is calculated excluding the construction sector.

The PPI measures prices at the producer level before they are passed along to consumers. Since the producer price index measures prices of consumer goods and capital equipment, a portion of the inflation at the producer level gets passed through to the HICP. By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.

Like the HICP, Eurostat's producer price index is also harmonized across the EMU and the larger EU membership. Producer price indexes provide another layer of information on inflation and can be an early warning of inflationary pressures building in the economy. They also record the evolution of prices over longer periods of time. The PPI reports on input prices or commodity prices and can tell whether producers are able to pass through increases in costs to their customers.

The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.

Producer prices are more volatile than consumer prices. The CPI includes services components which are more stable than goods, while the PPI does not. Commodity prices react more quickly to supply and demand. Volatility is higher earlier in the production chain. Partly because of this, financial markets will look to the core (ex-energy) index to provide a better guide to underlying trends.