|Month over Month||0.2%||0.0%||0.1%|
|Year over Year||-1.1%||-1.3%||-1.5%|
Producer prices were unchanged on the month in May following a run of three successive 0.1 percent rises. Annual PPI inflation was still strongly negative but, at minus 1.3 percent, a couple of ticks above its April mark and at its highest level in half a year. The results were on the weak side of market expectations.
The stability of the headline index masked a 0.2 percent monthly increase in the price of basics and a 0.1 percent dip in consumer goods. Capital goods were also flat but energy was 0.2 percent lower. As a result, excluding energy the PPI was similarly stable at its April level and, at minus 0.3 percent, the annual core rate also matched the previous period's outturn.
May's PPI data further reduce deflationary risks but also suggest that a rapid recovery in consumer prices in not on the cards anytime soon.
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.
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