JP: Producer Price Index

October 13, 2016 06:50 CDT

Consensus Actual Previous
Month over Month -0.1% 0.0% -0.3%
Year over Year -3.2% -3.2% -3.6%

Japan's producer price index fell 3.2 percent year-on-year in September, up from a fall of 3.6 percent in August and in line with the consensus forecast. Producer price inflation has now been in negative territory for eighteen consecutive months but has risen in each of the last two months after falling to a multi-year low of minus 4.2 percent in April, May and June. The index was flat on the month in September after falling by 0.3 percent in August.

Producer prices fell or were flat in September 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 13.3 percent in year-on-year terms in September compared with a revised fall of 15.1 percent in August while prices for non-ferrous metals were down 12.4 percent on the year. Electric power, gas and water prices also recorded a large year-on-year fall.

The Bank of Japan expects low global commodity prices to keep downward pressure on domestic producer prices. This, in turn, represents a major risk to its forecast for core consumer inflation to rise from 0.1 percent in the fiscal year ending March 2017 to 1.7 percent in the fiscal year ending March 2018, just below its inflation target of 2.0 percent. Officials are currently preparing a quarterly review of the growth and inflation outlook ahead of the next policy meeting in early November.

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.