CN: Producer Price Index

Tue Apr 10 20:30:00 CDT 2018

Consensus Actual Previous
Y/Y % Change 3.2% 3.1% 3.7%
M/M % Change -0.2% -0.1%

China's headline producer price index increased by 3.1 percent on the year in March, slowing from 3.7 percent on the year in February and just below the consensus forecast of 3.2 percent. This is the fifth consecutive monthly decline in headline PPI inflation and takes it to its lowest level since late 2016. The index fell 0.2 percent on the month in February after a decline of 0.1 percent previously.

The decline in headline PPI inflation in March was broad based, with a weaker year-on-year increase in all major categories. Prices for production materials rose 4.1 percent on the year in March, down from 4.8 percent in February, while the year-on-year increase in fuel and power costs slowed from 6.0 percent to 4.9 percent. Price gains were also weaker for ferrous metals, non-ferrous metals, and raw chemical materials, while the year-on-year increase in consumer goods prices fell slightly from 0.3 percent to 0.2 percent.

The fall in headline PPI inflation in March likely reflects to some extent the impact of the timing of lunar new holidays, which took place in mid-February this year but in late January in 2017. Looking at year-to-date data corrects for this impact, with the year-to-date increase falling from 4.0 percent in February to 3.7 percent in March. Nevertheless, price pressures have clearly moderated since the end of last year when the PPI recorded a year-on-year increase of 4.9 percent in December.

The fall in headline PPI inflation in March is also broadly in line with PMI survey results. The Caixin PMI surveys for the manufacturing sector and the services sector both showed a weaker increase in input cost growth, with the composite measure falling to its lowest level since last July.

The Producer Price Index (PPI) measures the change in the price of goods purchased and sold by producers. The industrial producer price index reflects the trend and level of prices change when the products are sold for the first time. The industrial purchaser price index reflects the trend and level of prices change for the products purchased by the industrial enterprises as intermediate inputs.

It is a leading indicator of consumer inflation - when producers pay and charge more for goods the higher costs are usually passed on to the consumer.

The PPI measures the industrial products price changes for the domestic market. Unlike most other countries, China only produces a comparison with the same month in the previous year but not with the previous month. The PPI covers all manufacturing activities. The prices include excise taxes but exclude VAT. The industry breakdown for the PPI follows China's Industrial Classification of the National Economy. The data include a 38 industry breakdown and are not adjusted for seasonality. They are available by the 20th of the month following the reference month and are published in the daily NBS paper "China Information".

The statistical survey of industrial producer prices covers prices for over 11,000 products from 1702 subclasses, 191 groups; and the statistical surveys of industrial purchaser prices cover prices for over 6,000 industrial products from over 900 subclasses. Industrial producer prices are collected from combined surveys of key businesses and typical businesses. Starting from 2011, the key businesses are those with their turnover from primary activities over 20 million yuan, and the typical businesses are those with less than 20 million yuan. The surveys cover about 60,000 industrial enterprises in over 400 cities across the country.