JP: Producer Price Index

Mon Jan 15 17:50:00 CST 2018

Consensus Actual Previous Revised
Month over Month 0.3% 0.2% 0.4% 0.5%
Year over Year 3.1% 3.1% 3.5% 3.6%

Japan's producer price index increased by 3.1 percent on the year in December, down from a revised 3.6 percent in November and in line with the consensus forecast. This is the first decline in the PPI inflation since mid-2016. The index rose 0.2 percent on the month in December after a revised increase of 0.5 percent in November, below the consensus forecast of 0.3 percent.

The decline in the headline year-on-year change in the PPI reflects weaker price gains for several major components. Petroleum and coal prices (around 6 percent of the index) rose 14.8 percent on the year in December, down from 19.3 percent in November, while there was also a deceleration in the year-on-year increase in utilities costs (around 7 percent of the index) from 10.1 percent to 9.0 percent. Beverage and food prices, representing around 14 percent of the index, rose 0.1 percent on the year in December after an increase of 0.2 percent in November.

In contrast to today's official data, PMI survey data for the Japanese manufacturing sector showed input costs rose at a faster pace in December, with selling prices also reported to have been increased for the twelfth consecutive month. Despite the decline in December, there has been a solid upward trend in producer prices over the last twelve months and officials at the Bank of Japan continue to forecast 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.