Producer prices fell for a fourth straight month in April. A 3.2 percent monthly decline was much steeper than the market consensus and followed a marginally smaller revised 1.3 percent drop in March. Prices have now decreased in six of the last seven months with the latest drop reducing annual PPI inflation from 5.5 percent to 1.0 percent, its lowest rate since January 2021.

As usual, it was the energy market driving the latest developments and prices here were down fully 10.1 percent on the month. However, while capital goods (0.4 percent), consumer durables (0.2 percent) and non-durables all posted fresh gains, a 0.6 percent fall in intermediates was enough to see core prices dip a monthly 0.1 percent. The annual underlying rate now stands at 5.1 percent, down from March's 5.8 percent and its weakest print since May 2021.

Regionally, most member states saw sizeable monthly declines in their national PPI, including France (5.1 percent), Italy (6.5 percent) and Spain (2.0 percent). However, Germany (0.3 percent) posted a small increase.

The May data indicate a further easing in underlying pipeline pressures in Eurozone manufacturing and the yearly core rate is now just below its HICP counterpart. Even so, prices in general are still rising too quickly to prevent the ECB tightening again next week. Today's update leaves the Eurozone ECDI and ECDI-P deep in negative surprise territory at minus 38 and minus 23 respectively. In other words, overall economic activity continues to significantly underperform market expectations.

Producer prices are expected to fall 2.2 percent on the month, reducing the annual inflation rate from 5.9 percent in March to 2.4 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.