FR: PPI


Fri Nov 27 01:45:00 CST 2015

Consensus Actual Previous Revised
Month over Month -0.2% 0.2% 0.1% 0.0%
Year over Year -2.5% -2.6% -2.5%

Highlights
Producer prices (ex-construction) rose 0.2 percent on the month in October. The increase, which followed a slightly weaker revised flat reading in September, put the PPI 2.5 percent lower on the year, matching its September rate.

The major boost was provided by mining and quarrying, water and energy where charges jumped nearly 2 percent from the end of last quarter. Transport equipment (0.1 percent) saw the only other gain and there were monthly declines in coke and refined petroleum products (2.4 percent), food and drink (0.1 percent) as well as in the other manufactured products category (0.4 percent). Electrical and electronic equipment registered no change.

Despite October's gain, producer prices still show a solid trend decline and the PPI last month was more than 5 percent short of its March 2013 peak. Business surveys have suggested renewed downside pressure on prices in November amidst continuing very tight market conditions.

Definition
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.

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.

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.