|Year over Year||1.0%||1.0%||0.5%|
|Month over Month||0.2%||0.2%||0.6%|
Japan's producer price index rose 1.0 percent on the year in February after an increase of 0.5 percent in January, in line with the consensus forecast. Year-on-year growth in the index has been trending higher since mid-2016 and is now at its highest level since late 2014. The index rose 0.2 percent on the month, after an increase of 0.6 percent in January, also matching the consensus forecast.
The month-on-month increase in February reflected higher prices for most categories of products, with chemicals and related products (up 1.1 percent on the month) and electric power, gas and water (also up 1.1 percent) making the biggest contributions to growth. Prices of petroleum and coal products rose only modestly on the month, up 0.1 percent after an increase of 5.8 percent in January, but year-on-year growth in these prices accelerated from 21.9 percent to 27.9 percent, highlighting the impact that higher global oil prices are having on the headline PPI.
Officials at the Bank of Japan have argued over the last year or so that producer prices and consumer prices should start to show stronger year-on-year growth once the negative impact of previous declines in global oil prices fades. Consistent with this view, headline PPI has now posted positive year-on-year growth for two consecutive months, while year-on-year growth in the CPI has been in positive territory for four consecutive months. Although underlying measures of inflation remain subdued for now, stronger increases in energy prices suggest that broader price pressures in the Japanese economy are also likely to build in the medium-term.
The Producer Price Index (PPI) is a measure of the average price level for a fixed basket of capital and consumer goods paid by producers. Analysts look to the PPI for early signs of inflation in the production process.
The producer price index focuses on the prices of goods transacted between companies. It was previously known as the corporate goods price index. The index reflects the price level for the supply and demand of individual industrial goods. This index is calculated by the BoJ Research and Statistics Department. Three indexes are contained in this release - the domestic producer index, the export price index and the import price index. It is the domestic index that market players follow. The PPI comprehensively tracks input price pressures; however, the PPI has a track record of increasing and not necessarily feeding through to the CPI because of weak demand. But if an increase in the PPI is followed by a rise in the CPI, concerns about inflation may prompt the Bank of Japan to raise interest rates.
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