Tue Mar 31 01:45:00 CDT 2015

Consensus Actual Previous Revised
Month over Month 0.1% 0.7% -0.9% -1.0%
Year over Year -2.6% -3.3% -3.4%

Producer prices were surprisingly firm in February. A 0.7 percent monthly rise was also the first increase since last October and the sharpest since July 2013. Nonetheless, annual PPI inflation remained firmly negative at minus 2.6 percent, up from minus 3.4 percent in January.

Inevitably the rebound in headline prices was largely due to a pick-up in energy costs. Hence, refined petroleum products spiked 13.1 percent on the month, more than reversing January's 12.6 percent slump. Mining and quarrying products, energy and water increased 1.6 percent while food, drink and tobacco as well as transport materials were flat. The other industrial products category posted a 0.4 percent decline and electrical equipment, information technology and machinery dipped 0.1 percent.

Volatile energy charges continue to dominate monthly swings in overall producer prices. Recent surveys have suggested that underlying deflationary pressures may have eased a little but fierce completion in what continue to be very competitive markets should effectively keep a lid on core output prices for some time yet.

The producer price index (PPI) is a measure of the average transaction price, exclusive of VAT, for goods from industrial activities sold on the French market.

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 consumer price index (CPI).

Because the index of producer prices measures price changes at an early stage in the economic process, it can serve as an indicator of future inflation trends. The producer price index and its sub-indexes are often used in business contracts for the adjustment of recurring payments. They also are used to deflate other values of economic statistics like the production index. It should be noted that the PPI excludes construction.

The PPI provides a key measure of inflation alongside the consumer price indexes and GDP deflators. The output price indexes measure change in manufacturer' goods prices produced and often are referred to as factory gate prices. Input prices are not limited to just those materials used in the final product, but also include what is required by the company in its normal day-to-day operations.

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 they taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.

The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.