AU: PPI


Thu Apr 30 20:30:00 CDT 2015

Actual Previous
Quarter over Quarter 0.5% 0.1%
Year over Year 0.7% 1.1%

Highlights
March quarter final demand (excluding exports) producer price index was up 0.5 percent on the quarter and 0.7 percent from the same quarter a year ago. The PPI was up mainly due to price increases received for computer & electronic equipment manufacturing (7.5 percent), building construction (0.8 percent) and other transport equipment manufacturing (7.4 percent). The increases partly offset the declines in prices received for petroleum refining & petroleum fuel manufacturing (down 17.0 percent) and pharmaceutical & medicinal product manufacturing (down 12.8 percent).

Intermediate prices were down 0.3 percent thanks mainly to the prices received for oil & gas extraction (down 23.2 percent) and petroleum refining & petroleum fuel manufacturing (down 17.6 percent). On the year, intermediate prices were down 1.0 percent. These declines were partly offset by increases in the prices received for grain, sheep, beef & dairy farming (6.1 percent), other agricultural products (5.5 percent) and textile, leather, clothing & footwear manufacturing (4.5 percent).

Definition
The producer price index (PPI) is a measure of the average price level for a fixed basket of capital and consumer goods paid by producers.

Description
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). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months. A producer's price is the amount received by a producer from the purchaser of a unit of goods or services produced as output less any value added tax similar deductible tax, invoiced to the purchaser. It excludes any transportation charges invoiced separately by the producer. Unlike most other countries, Australia calculates its PPI on a quarterly basis.

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.