Mon Apr 20 01:00:00 CDT 2015

Consensus Actual Previous
Month over Month 0.2% 0.1% 0.1%
Year over Year -1.6% -1.7% -2.1%

Producer prices (ex-construction) rose for a second successive month in March, their first back-to-back increase since September/October 2012. A 0.1 percent increase on the month was slightly lower than expected and lifted annual PPI inflation from minus 2.1 percent to minus 1.7 percent, its strongest reading since November 2014.

Energy was flat on the month leaving charges 4.7 percent lower than in March 2014. Excluding this subsector the PPI was 0.1 percent on the month and 0.5 percent lower on the year after a 0.6 percent decline last time. Elsewhere prices were better behaved. Hence, basics and capital goods were up 0.1 percent and consumer goods 0.3 percent.

Despite the pick-up in March's headline PPI, underlying price pressures seemingly remain quite soft. That said, recent survey data suggest that the introduction of the minimum wage in January and skills shortages in selected industries are together forcing some companies to raise their selling prices. If so, any durable and meaningful rally in oil costs on top of the widely anticipated step-up in economic growth could yet see inflation surprise on the upside.

The producer price index (PPI) is a measure of the average price level of raw materials and industrial products produced in Germany. This includes manufacturing, energy and water and mining.

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. These price statistics cover both the sales of industrial products to domestic buyers at different stages in the economic process and the sales between industrial enterprises.

The PPI provides a key measure of inflation alongside the consumer price indexes and GDP deflators. 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.