Producer prices increased for a second successive month in September, the first back-to-back rise since August/September 2022. A 0.5 percent monthly gain was slightly steeper than the market consensus but with base effects still very negative, small enough to deepen the annual inflation rate from minus 11.5 percent to minus 12.4 percent, yet another new record low.

In fact, excluding food and energy, core prices were again soft. A 0.1 percent dip versus August means that the underlying gauge has now fallen for six straight months and halved the yearly rate to just 0.5 percent. Energy prices were up a monthly 2.2 percent but capital goods and durable consumer goods were flat while intermediates consumer non-durables declined 0.2 percent.

Regionally, France (0.7 percent), Italy (0.8 percent) and Spain (1.5 percent) all posted solid monthly gains but Germany (minus 0.2 percent) bucked the trend. Most other member states also recorded increases.

Despite another relatively robust headline print, the latest fall in core prices shows that underlying PPI inflation continues to trend down, in line with a clearly still very weak Eurozone manufacturing sector. The region's RPI and RPI-P now stand at minus 3 and minus 4 respectively, both measures close enough to zero to indicate overall economic activity performing much as expected.

Producer prices are expected to fall 12.8 percent on the year in September which would compare with 11.5 percent contraction in August. The monthly showing, at a consensus increase of 0.4 percent in September, ended seven straight months of contraction in August, rising 0.6 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.