Wed Sep 30 01:45:00 CDT 2015

Consensus Actual Previous
Month over Month -0.3% -0.9% -0.1%
Year over Year -2.1% -1.6%

Producer prices (ex-construction) continued to fall in August. A 0.9 percent monthly decline was the fourth in the last five months, steeper than expected and means that the overall PPI has still not risen since back in February. Annual PPI inflation was minus 2.1 percent, down from July's minus 1.6 percent rate and its twentieth consecutive sub-zero print.

Inevitably tumbling energy costs did much of the damage and charges for coking refining products were off fully 12.4 percent on the month after a 6.8 percent nosedive in July. Elsewhere prices were rather more stable. Hence, food, drink and tobacco saw a 0.3 percent gain and transport materials a 0.1 percent rise. Electrical equipment and electronics dipped 0.1 percent and the other industrial products category was off 0.7 percent.

The headline PPI is now 5.5 percent below its March 2013 peak and the gap is still getting wider. Oil may be largely to blame but pipeline pressures on inflation remain easily weak enough to suggest that a renewed period of negative annual CPI inflation rates is more than possible over coming months.

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.