CN: Producer Price Index

January 9, 2017 07:30 CST

Consensus Actual Previous
Y/Y % Change 4.6% 5.5% 3.3%
M/M % Change 1.6% 1.5%

China's producer price index rose 5.5 percent year-on-year in December after increasing by 3.3 percent in November. This is the strongest increase in the PPI since 2011 and well above the consensus forecast for an increase of 4.6 percent. The year-on-year change in the PPI has been trending higher since the end of 2015 and has now been above zero for the last four months after almost five years in negative territory. The PPI advanced 1.6 percent month-on-month in December, the sixth consecutive increase.

Most categories of producer prices posted stronger year-on-year increases in December compared with November. Prices for production materials rose 7.2 percent year-on-year, up from 4.3 percent, while fuel and power prices rose by 10.1 percent year-on-year after rising by 6.0 percent in September. Inflation also picked up for consumer goods, metals and other raw materials.

The sharp increase in producer price inflation in recent months, and in December in particular, partly reflects the base effects of very big declines in producer prices twelve months previously. Additional increases in global commodity prices and further currency depreciation are also helping to boost cost pressures for Chinese producers. This could put upward pressure on import prices for China's trade partners and on domestic consumer price inflation which, despite moderating in December, has picked up significantly in recent months.

The Producer Price Index (PPI) measures the change in the price of goods purchased and sold by producers. The industrial producer price index reflects the trend and level of prices change when the products are sold for the first time. The industrial purchaser price index reflects the trend and level of prices change for the products purchased by the industrial enterprises as intermediate inputs.

It is a leading indicator of consumer inflation - when producers pay and charge more for goods the higher costs are usually passed on to the consumer.

The PPI measures the industrial products price changes for the domestic market. Unlike most other countries, China only produces a comparison with the same month in the previous year but not with the previous month. The PPI covers all manufacturing activities. The prices include excise taxes but exclude VAT. The industry breakdown for the PPI follows China's Industrial Classification of the National Economy. The data include a 38 industry breakdown and are not adjusted for seasonality. They are available by the 20th of the month following the reference month and are published in the daily NBS paper "China Information".

The statistical survey of industrial producer prices covers prices for over 11,000 products from 1702 subclasses, 191 groups; and the statistical surveys of industrial purchaser prices cover prices for over 6,000 industrial products from over 900 subclasses. Industrial producer prices are collected from combined surveys of key businesses and typical businesses. Starting from 2011, the key businesses are those with their turnover from primary activities over 20 million yuan, and the typical businesses are those with less than 20 million yuan. The surveys cover about 60,000 industrial enterprises in over 400 cities across the country.