JP: Producer Price Index

November 10, 2016 05:50 CST

Consensus Actual Previous
Year over Year -2.7% -2.7% -3.2%
Month over Month -0.1% -0.1% 0.0%

Japan's producer price index shows that deflationary pressures continued to moderate in October, with year-on-year growth in the index increasing to minus 2.7 percent from minus 3.2 percent in September, in line with the consensus forecast. Year-on-year growth in the index has been in negative territory since April 2015, but has now risen for four months in a row. The index fell 0.1 percent on the month in October, again in line with the forecast, after no change in September.

Producer prices picked up in October in some of the key industry categories covered in the index. Petroleum and coal prices, in particular, rose 2.9 percent on the month, with year-on-year growth in these prices strengthening from minus 13.3 percent in September to minus 7.3 percent. Smaller year-on-year declines were also recorded in the prices of iron and steel, chemicals and related products, and nonferrous metals.

Today's report shows that producer prices remain weak in Japan but also provide some support for the Bank of Japan's view that the negative impact of global oil and other commodity prices is moderating.

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.