| Consensus | Actual | Previous | Revised | |
|---|---|---|---|---|
| Output - M/M | 0.2% | -0.3% | 0.5% | |
| Output - Y/Y | 12.4% | 12.1% | 13.5% | |
| Input - M/M | 0.2% | -0.1% | -0.1% | 0.4% |
| Input - Y/Y | 12.8% | 12.7% | 14.1% | 14.7% |
Highlights
The February PPIs were on the soft side of expectations but yearly rates remain well in double-digits.
Factory gate prices fell a monthly 0.5 percent, their third decrease in the last four months. As a result, annual output price inflation slid from 13.5 percent to 12.1 percent, its lowest reading since February 2022. On the month, there were sharp declines in petroleum products (5.7 percent) and chemical and pharmaceuticals (3.4 percent) as well as a smaller fall in transport equipment (0.5 percent). On the upside, there were gains in food (0.7 percent), tobacco and alcohol (4.1 percent), metal, machinery, and equipment (0.8 percent) and computer, electrical and optical equipment (1.1 percent). Consequently, core prices dropped 0.2 percent which saw the annual underlying rate drop from 11.2 percent to 10.4 percent.
At the same time, raw material and fuel costs dipped 0.1 percent on the month which, following a revised 0.4 percent increase in January, reduced their yearly inflation rate from 14.7 percent to 12.7 percent, its lowest print since September 2021. Crude oil (minus 2.0 percent) was again largely responsible for the overall monthly decline alongside fuel (minus 1.0 percent), chemicals (minus 1.1 percent) and other produced materials (minus 1.1 percent). The steepest rises were in imported food materials (3.3 percent) and beverages and tobacco (2.4 percent).
PPI inflation is moving in the right direction but current rates show that underlying pipeline pressures remain uncomfortably strong. The UK's ECDI now stands at 11 and the ECDI-P at 5, both measures indicating that economic activity in general is running just slightly ahead of market expectations.
Factory gate prices fell a monthly 0.5 percent, their third decrease in the last four months. As a result, annual output price inflation slid from 13.5 percent to 12.1 percent, its lowest reading since February 2022. On the month, there were sharp declines in petroleum products (5.7 percent) and chemical and pharmaceuticals (3.4 percent) as well as a smaller fall in transport equipment (0.5 percent). On the upside, there were gains in food (0.7 percent), tobacco and alcohol (4.1 percent), metal, machinery, and equipment (0.8 percent) and computer, electrical and optical equipment (1.1 percent). Consequently, core prices dropped 0.2 percent which saw the annual underlying rate drop from 11.2 percent to 10.4 percent.
At the same time, raw material and fuel costs dipped 0.1 percent on the month which, following a revised 0.4 percent increase in January, reduced their yearly inflation rate from 14.7 percent to 12.7 percent, its lowest print since September 2021. Crude oil (minus 2.0 percent) was again largely responsible for the overall monthly decline alongside fuel (minus 1.0 percent), chemicals (minus 1.1 percent) and other produced materials (minus 1.1 percent). The steepest rises were in imported food materials (3.3 percent) and beverages and tobacco (2.4 percent).
PPI inflation is moving in the right direction but current rates show that underlying pipeline pressures remain uncomfortably strong. The UK's ECDI now stands at 11 and the ECDI-P at 5, both measures indicating that economic activity in general is running just slightly ahead of market expectations.
Market Consensus Before Announcement
Output prices in February are seen falling to a 12.4 percent year-over-year rate versus January's 13.5 percent.
Definition
The Producer Price Index (PPI) measures the prices of goods bought and sold by manufacturers. The input price index measure the prices of materials and fuels purchased by manufacturers for processing. These are not limited to just those materials used in the final product, but also include what is required by the company in its normal day-to-day running. The output price index captures prices charged by manufacturers as they pass through the factory gate and excludes any VAT or similar deductible tax. Both measures may be seen as leading indicators of consumer price index (CPI) inflation although the short-term correlation is only very weak.
Description
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 consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months. A producer's price is the amount received by a producer from the purchaser of a unit of goods or services produced as output less any value added tax (VAT) or similar deductible tax, invoiced to the purchaser. It excludes any transportation charges invoiced separately by the producer.
The PPI provides a key measure of inflation alongside the consumer price indexes and GDP deflators. The output price indexes measure change in manufacturer' goods prices produced and often are referred to as factory gate prices. Input prices are not limited to just those materials used in the final product, but also include what is required by the company in its normal day-to-day operations.
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.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
The PPI provides a key measure of inflation alongside the consumer price indexes and GDP deflators. The output price indexes measure change in manufacturer' goods prices produced and often are referred to as factory gate prices. Input prices are not limited to just those materials used in the final product, but also include what is required by the company in its normal day-to-day operations.
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.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
