JP: Producer Price Index

February 9, 2017 05:50 CST

Consensus Actual Previous Revised
Month over Month 0.2% 0.6% 0.6% 0.7%
Year over Year 0.0% 0.5% -1.2% -1.2%

Japan's producer price index rose 0.5 percent year-on-year in January after dropping 1.2 percent in December, well above the consensus forecast for zero change on the year. Year-on-year growth in the index has been trending higher for seven consecutive months and is now in positive territory for the first time since early 2015. The index rose 0.6 percent on the month in January after an an increase of 0.7 percent in December, compared with the consensus forecast of 0.2 percent.

Higher global commodity prices drove the increase in producer prices in January. Petroleum and coal prices made the biggest contribution to the month-on-month gain in the headline index, increasing by 6.2 percent, with the prices of iron and steel, chemicals and related products, and nonferrous metals also advancing strongly. Prices for several major categories of manufactured goods also recorded flat or positive growth in January after falling in December.

With producer prices now increasing in year-on-year terms for the first time in nearly two years, today's data provides further support for the Bank of Japan's view that the negative impact of global oil and other commodity prices is moderating. In year-on-year terms, petroleum and coal prices rose by 22.3 percent in January, up from an increase of 4.0 percent in December and a fall of 5.6 percent in November. These recent increases in energy prices suggest that broader price pressures in the Japanese economy are also likely to 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.