JP: Producer Price Index

Mon Feb 12 17:50:00 CST 2018

Consensus Actual Previous Revised
Month over Month 0.2% 0.3% 0.2% 0.1%
Year over Year 2.7% 3.1% 3.0%

Japan's producer price index increased by 2.7 percent on the year in January, down from a revised 3.0 percent in December. This is the second consecutive decline in the PPI inflation after steady increases were recorded from mid-2016. The index rose 0.3 percent on the month in January after a revised increase of 0.5 percent in December, above the consensus forecast of 0.2 percent.

The decline in the headline year-on-year change in the PPI was mainly driven by energy costs. Petroleum and coal prices (around 6 percent of the index) rose 12.3 percent on the year in January, down from 14.9 percent in December, while there was also a deceleration in the year-on-year increase in utilities costs (around 7 percent of the index) from 8.8 percent to 7.9 percent. Most other categories recorded moderately weaker or steady year-on-year price changes in January. The main exception was beverage and food prices, representing around 14 percent of the index, which rose 0.4 percent on the year in January after no change in December.

Despite the declines in December and January, headline producer price inflation remains at relatively strong levels. PMI survey data also indicated strong growth in input costs in January, prompting respondents to report their selling prices were raised at the fastest pace since October 2008.

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.