Fri Oct 30 02:45:00 CDT 2015

Consensus Actual Previous
Month over Month -0.2% 0.1% -0.9%
Year over Year -2.6% -2.1%

Producer prices (ex-construction) unexpectedly turned up in September. A minimal 0.1 percent monthly rise was the first increase of any size since June but not sufficient to prevent annual PPI inflation, negative since December 2013, sliding to minus 2.6 percent and so still further below zero.

The main upward pressure on prices came from mining, quarrying, energy and water where charges climbed 1.5 percent from August. The only other rise was in transport equipment which saw just a 0.1 percent gain. Elsewhere prices were either flat or lower with notably sharp falls in coke and refined petroleum products (1.2 percent) and the other manufactured goods category (0.5 percent).

The gentle uptick in the September PPI does nothing to alter a still very subdued picture of pipeline inflation pressures. Annual CPI inflation was zero in both August and September and looks likely to hover around this mark for some while yet.

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.