JP: Producer Price Index

Mon Dec 11 17:50:00 CST 2017

Consensus Actual Previous
Month over Month 0.2% 0.4% 0.3%
Year over Year 3.3% 3.5% 3.4%

Japan's producer price index increased by 3.5 percent on the year in November, up from 3.4 percent in October and above the consensus forecast of 3.3 percent. Year-on-year growth in the index has been trending higher since mid-2016 and is now at its highest level since late 2014. The index rose 0.4 percent on the month in November after an increase of 0.3 percent in October, again above the consensus forecast of 0.2 percent.

The small increase in the headline year-on-year change in the PPI reflects offsetting moves in the components. Beverage and food prices, representing around 14 percent of the index, were flat on the year in November after falling by 0.1 percent in October, while prices for transportation equipment (also around 14 percent of the index ) rose 0.1 percent on the year after no change previously. Petroleum and coal prices (around 6 percent of the index) rose 19.0 percent on the year, also up from 16.1 percent in October, but his was partly offset by a deceleration in the year-on-year increase in utilities costs (around 7 percent of the index) from 11.1 percent to 10.2 percent.

Consistent with today's official data, PMI survey data for the Japanese manufacturing sector showed input costs rose at their fastest pace in nearly three years in November, with growth in selling prices also reported to have increased for the third consecutive month. However, 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.

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.