JP: Producer Price Index

Mon Mar 12 18:50:00 CDT 2018

Consensus Actual Previous
Month over Month 0.2% 0.0% 0.3%
Year over Year 2.6% 2.5% 2.7%

Japan's producer price index increased by 2.5 percent on the year in February, down from 2.7 percent in January and just below the consensus forecast of 2.6 percent. This is the third consecutive decline in the PPI inflation after steady increases were recorded from mid-2016. The index was flat on the month in February after an increase of 0.3 percent in January, below the consensus forecast of 0.2 percent.

As in January, the decline in the headline year-on-year change in the PPI in February was largely driven by energy costs. Petroleum and coal prices (around 6 percent of the index) rose 11.6 percent on the year in February, down from a revised 12.6 percent in January, while there was also a drop in the year-on-year increase in utilities costs (around 7 percent of the index) from a revised 8.2 percent to 6.9 percent. Beverage and food prices, representing around 14 percent of the index, advanced 0.1 percent on the year in February after an increase of 0.2 percent in January, while the prices of iron and steel, non-ferrous metals and chemical and related products also increased at a slower pace.

PMI survey data also indicated more subdued growth in both input costs and selling prices in February. Nevertheless, despite recent declines, headline producer price inflation remains at relatively strong levels.

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.