CH: Producer and Import Price Index

Tue Oct 13 02:15:00 CDT 2015

Consensus Actual Previous
M/M % change -0.1% -0.1% -0.7%
Y/Y % change -6.8% -6.8% -6.8%

The combined producer and import price index fell an expected 0.1 percent on the month in September. This left the composite measure 6.8 percent below its level a year ago, in line with the August outcome and the first time that the annual rate has not declined since March.

Domestic producer prices were flat at their mid-quarter level and 4.8 percent weaker on the year. Petroleum products were off a further 3.0 percent on the month but most other categories were broadly stable and the core PPI also registered no change from August.

At the same time, import prices fell a monthly 0.2 percent to stand 11.2 percent below their mark in September 2014. Again, petroleum products (also down a monthly 3.0 percent) did most of the damage and core prices were steady.

For the overall index the underlying component was flat at the previous month's level and, at minus 5.2 percent, its yearly rate of change was similarly stable. Today's report offers some limited hope that deflationary pressures may be starting to flatten out but even if so, there is already enough in the pipeline to suggest that CPI inflation will stay sub-zero for a long time yet.

The headline composite index combines domestic producer prices and import prices into a single measure. This can be volatile and financial markets will normally look at the core index for a more reliable guide to underlying developments.

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. Producer prices are more volatile than consumer prices. While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. 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.