DE: PPI


Mon Jul 20 01:00:00 CDT 2015

Consensus Actual Previous
Month over Month -0.1% -0.1% 0.0%
Year over Year -1.4% -1.4% -1.3%

Highlights
Producer prices matched expectations in June. A 0.1 percent monthly fall was the first decrease since January and followed an unrevised unchanged reading in May. Courtesy of the dip, the yearly rate of decline steepened from 1.3 percent to 1.4 percent.

The monthly drop was attributable to 0.4 percent decreases in energy and basics goods. By contrast, capital goods edged up 0.1 percent. The core index was also 0.1 percent firmer than in mid-quarter and, at minus 0.2 percent, its annual rate was also tick higher than last time.

After hefty falls in December and January the PPI has trended very gently higher in subsequent months and is now 0.2 percent above its level at the start of the year. The headline index remains very vulnerable to swings in commodity prices but in the main, deflationary risks appear to have faded. That said, firms are still struggling to raise selling prices in very competitive markets so any significant acceleration in CPI inflation is unlikely anytime soon.

Definition
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.

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).

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.