FR: PPI


Fri Dec 18 01:45:00 CST 2015

Consensus Actual Previous
Month over Month 0.2% 0.1% 0.2%
Year over Year -2.4% -2.5%

Highlights
Producer prices rose for a second consecutive month in November. A 0.1 percent monthly increase followed and unrevised 0.2 percent gain in October and reduced annual PPI deflation from 2.5 percent to 2.4 percent.

However, overall prices were boosted by a 1.1 percent monthly spurt in mining, quarrying, energy and water charges. By contrast, manufactured goods saw a 0.1 percent dip versus October within which food, alcohol and tobacco posted a 0.3 percent slide and the other manufactured goods sector a 0.2 percent decline. Coke and refined petroleum products recorded a 0.2 percent increase while the other major subsectors were flat.

Accordingly, despite November's headline rise, the underlying PPI trend remains soft and the latest downturn in oil prices should anyway ensure a weak outturn this month. At the consumer level, deflation risks are still a real threat to the economic recovery.

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.