JP: Producer Price Index

September 11, 2016 06:50 CDT

Consensus Actual Previous
Month over Month -0.2% -0.3% 0.0%
Year over Year -3.5% -3.6% -3.9%

The producer price index continues to show strong deflationary pressures in Japan, falling in year-on-year terms for the seventeenth consecutive month in August. At minus 3.6 percent, the year-on-year fall in August was slightly weaker than consensus expectations but up from minus 3.9 percent in July. The index fell 0.3 percent on the month after it was flat in July.

Producer prices fell or were flat in August for almost all of the industry categories covered in the index. Petroleum and coal prices continue to be the major drag on the headline index, dropping by 15.2 percent in year-on-year terms in August compared with a revised fall of 19.3 percent in July, while prices for non-ferrous metals were down 12.9 percent on the year.

The Bank of Japan expects low global commodity prices to keep downward pressure on domestic producer prices, with officials noting this is a major risk for its forecast for consumer price inflation to increase towards its target of 2 percent.

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.