Producer prices fell sharply again in November. Following a marginally steeper revised 3.0 percent monthly drop in October, the PPI declined a further 0.9 percent for its first back-to-back decrease since April/May 2020. The fall was almost twice the market consensus and with base effects strongly negative, sharp enough to cut the annual inflation rate from 30.5 percent to 27.1 percent, its lowest mark since December 2021.

Energy, down a monthly 2.2 percent, did most of the work and excluding this category the PPI rose 0.1 percent. However, this matched its smallest increase since September 2020 and reduced the underlying annual rate by 0.9 percentage points to 13.1 percent, its weakest print since last February. Intermediates slipped 0.4 percent versus October while consumer durables were up 0.2 percent, capital goods 0.3 percent and consumer non-durables 0.6 percent.

Regionally, most member states posted monthly falls, notably Germany (3.9 percent) and Spain (2.2 percent) but both France (1.2 percent) and Italy (3.3 percent) saw sizeable gains.

Today's update will be viewed as cautiously reassuring by the ECB but will not stop another, probable 50 basis point, increase in key interest rates next month. The Eurozone's ECDI now stands at 8 and the ECDI at 20, both measures indicating that economic activity in general is performing a little better than market expectations.

Producer prices are expected to fall 0.5 percent on the month in November for annual growth of 27.9 percent, the latter would compare with October's 30.8 percent.

The Producer Prices Index (PPI) measures the gross trading price of industrial goods sold into the domestic market. Changes in the index provide a guide to inflation from the point of view of the product's producer/manufacturer and, in contrast to the consumer price index (CPI), excludes VAT and other deductible taxed associated with turnover. The PPI covers manufacturing, mining and quarrying and utilities but excludes construction. The headline index can be very volatile so financial markets look at a core index to better understand underlying trends. This excludes the often highly erratic energy subsector.

The PPI measures prices at the producer level before they are passed along to consumers. Since the producer price index measures prices of consumer goods and capital equipment, a portion of the inflation at the producer level gets passed through to the HICP. By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.

Like the HICP, Eurostat's producer price index is also harmonized across the EMU and the larger EU membership. Producer price indexes provide another layer of information on inflation and can be an early warning of inflationary pressures building in the economy. They also record the evolution of prices over longer periods of time. The PPI reports on input prices or commodity prices and can tell whether producers are able to pass through increases in costs to their customers.

The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.

Producer prices are more volatile than consumer prices. The CPI includes services components which are more stable than goods, while the PPI does not. Commodity prices react more quickly to supply and demand. Volatility is higher earlier in the production chain. Partly because of this, financial markets will look to the core (ex-energy) index to provide a better guide to underlying trends.