JP: Producer Price Index

Wed Oct 11 18:50:00 CDT 2017

Consensus Actual Previous
Month over Month 0.2% 0.2% 0.0%
Year over Year 3.0% 3.0% 2.9%

Japan's producer price index advanced 3.0 percent on the year in September, up slightly from 2.9 percent in August and matching the consensus forecast. Year-on-year growth in the index has been trending higher since mid-2016. The index rose 0.2 percent on the month in September after no change in August, again in line with the consensus forecast.

The small increase in the headline year-on-year change in the PPI reflects offsetting moves in some of the key components. Transportation equipment prices fell 0.3 percent on the year in September after a drop of 0.5 percent in August, while the year-on-year change in prices of petroleum and coal products increased from 12.4 percent to 13.7 percent. Prices of chemicals and related products also posted a stronger year-on-year increase, up 3.3 percent in September from 3.0 percent in August. These stronger price rises were partly offset by a 0.2 percent year-on-year decline in beverages and food prices, which had fallen by 0.1 percent in August, while prices of electrical machinery and communications equipment fell 1.2 percent on the year in September after dropping 0.7 percent in August.

Despite the solid upward trend in producer prices over the last twelve months, officials at the Bank of Japan continue to forecast only a gradual increase in consumer price pressures over the medium-term. Consistent with the official data, PMI survey data for the Japanese manufacturing sector showed stronger growth in input costs but only a marginal increase in selling prices in September.

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.