Producer prices fell much as expected in March. A 1.6 percent monthly decline was just a tick shallower than the market consensus and followed a marginally smaller revised 0.4 percent drop in February. Prices have now decreased for three straight months and for five of the last six. With base effects strongly negative, annual PPI inflation slumped from 13.3 percent to 5.9 percent, its slowest rate since March 2021.

However, as usual, it was the energy market driving the latest developments. Prices here were down fully 4.8 percent on the month, following declines of 9.1 percent and 1.6 percent respectively in January and February. As a result, excluding this category, the PPI rose 0.2 percent, matching its February advance but still reducing the yearly core rate from 10.2 percent to 8.0 percent, its weakest post since August 2021. Elsewhere, intermediates also decreased a monthly 0.4 percent, but there were fresh gains in capital goods (0.2 percent), consumer durables (0.3 percent) and consumer non-durables (0.9 percent). Regionally, most member states saw monthly declines in their national PPI, including Germany (2.7 percent), Italy (2.0 percent) and Spain (2.2 percent). However, France (2.0 percent) posted a sizeable increase.

The March data indicate a further easing in underlying pipeline pressures in Eurozone manufacturing and the yearly core rate is now only just above its HICP counterpart. Nonetheless, while the trend may be in the right direction, consumer prices are still rising too quickly to prevent the ECB from tightening later today. Today's update puts the Eurozone ECDI at minus 6 and the ECDI-P at 5. In other words, in general, economic activity is performing much as expected.

Producer prices are expected to fall 1.7 percent on the month in March for annual growth of 6.2 percent, the latter would be less than half of February's 13.2 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.