JP: Producer Price Index

December 11, 2016 05:50 CST

Consensus Actual Previous
Year over Year -2.3% -2.2% -2.7%
Month over Month 0.3% 0.4% -0.1%

Japan's producer price index fell 2.2 percent year-on-year in November after dropping 2.7 percent in October, slightly higher than the consensus forecast for a fall of 2.3 percent. Year-on-year growth in the index has been in negative territory since April 2015, but has now risen for five months in a row. The index rose 0.4 percent on the month after an fall of 0.1 percent in October, compared with the consensus forecast of 0.3 percent.

Producer prices rose up in October in several of the key industry categories covered in the index. Petroleum and coal prices, in particular, rose 1.1 percent on the month after a strong increase of 3.0 percent in September, with year-on-year growth in these prices also strengthening to minus 5.4 percent from 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 deflationary pressures are continuing to moderate in Japanese input costs and also provide some support for the Bank of Japan's view that the negative impact of global oil and other commodity prices is moderating. Officials have consistently argued that weak global energy prices have been one of the major factors holding down consumer prices, and will likely see recent increases in petroleum and coal prices as evidence suggesting that consumer price pressures will 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.