JP: Producer Price Index

June 11, 2017 06:50 CDT

Consensus Actual Previous
Month over Month 0.1% 0.0% 0.2%
Year over Year 2.2% 2.1% 2.1%

Japan's producer price index rose 2.1 percent on the year in May, unchanged from the rate recorded in April and just below the consensus forecast of 2.2 percent. Year-on-year growth in the index has been trending higher since mid-2016. The index was flat on the month after an increase of 0.2 percent in April, just below the consensus forecast of 0.1 percent.

The month-on-month stability in May reflected offsetting moves in the main components. Prices for iron and steel products rose 0.4 percent on the month while electric power, gas and prices advanced 2.7 percent. Prices for petroleum and coal products fell 2.5 percent on the month, with most other categories seeing relatively little change in their prices.

The strong upward trend in producer prices over the last twelve months has yet to translate into appreciably stronger consumer prices, with both headline and core measures of the year-on-year change in the CPI still close to zero in recent months. Officials at the Bank of Japan continue to forecast only a gradual increase in consumer price pressures over the medium-term. PMI data for the Japanese manufacturing sector showed a strong increase in input costs in May, albeit slightly weaker than a 28-month high recorded in April. The survey also showed a small increase in selling prices for the fifth consecutive month.

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.