FR: PPI


Wed Jul 27 01:45:00 CDT 2016

Actual Previous Revised
Month over Month 0.4% 0.3% 0.4%
Year over Year -3.1% -3.5% -3.4%

Highlights
Producer prices (ex-construction) rose 0.4 percent on the month in June. This was their third increase in the last four months and equalled the steepest since February 2015. Annual PPI growth climbed from minus 3.4 percent to minus 3.1 percent, a 5-month high.

Coking refining products (4.4 percent) recorded easily the sharpest monthly rise ahead of utilities and waste (0.9 percent). Electrical equipment, information technology and machines (0.3 percent) as well as the other industrial products category (0.2 percent) also reported gains but food was only flat and transport materials dipped 0.1 percent. Overall manufacturing prices were up 0.3 percent versus May but 2.9 percent lower on the year.

Despite its relative buoyancy the June PPI was still some 7.4 percent below its peak level in March 2013. Deflation risks remain sizeable and the flash manufacturing PMI pointed to renewed weakness in July. Market conditions remain too tight to accommodate a sustainable and significant uptrend in prices, a situation that looks likely to prevail over at least remainder of 2016.

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.