| Consensus | Actual | Previous | |
|---|---|---|---|
| Month over Month | -0.2% | -0.5% | -0.1% |
| Year over Year | -7.1% | -7.9% | -11.0% |
Highlights
Producer prices continued to slide in November. A 0.5 percent monthly drop was a good deal steeper than the market consensus and was the sixth decline in the last seven months. However, in line with October, positive base effects still saw annual PPI inflation rise from minus 11.0 percent to minus 7.9 percent.
Energy prices were down 1.4 percent versus October but even excluding this category prices dipped a further 0.1 percent, nudging the yearly core rate just a tick higher to a still subdued 0.3 percent. Elsewhere, intermediates fell 0.2 percent while both capital goods and consumer durables were flat. Consumer non-durables were just 0.1 percent more expensive.
Today's update leaves intact a solid downtrend in producer prices and offers further proof of the underlying weakness of the German manufacturing sector. It also puts the German RPI at minus 31 and the RPI-P at minus 34. Both readings show economic activity in general continuing to lag market expectations.
Energy prices were down 1.4 percent versus October but even excluding this category prices dipped a further 0.1 percent, nudging the yearly core rate just a tick higher to a still subdued 0.3 percent. Elsewhere, intermediates fell 0.2 percent while both capital goods and consumer durables were flat. Consumer non-durables were just 0.1 percent more expensive.
Today's update leaves intact a solid downtrend in producer prices and offers further proof of the underlying weakness of the German manufacturing sector. It also puts the German RPI at minus 31 and the RPI-P at minus 34. Both readings show economic activity in general continuing to lag market expectations.
Market Consensus Before Announcement
After October's 0.1 percent monthly dip, November's PPI is seen falling 0.2 percent. Year-over-year, the PPI is expected to contract 7.1 percent versus 11.0 percent contraction in October.
Definition
The Producer Price Index (PPI) measures the price of industrial and commercial goods produced and sold domestically (excluding turnover tax). About 1,250 types of goods are used to calculate the index and prices are reported by a total of 5,000 enterprises under fixed contractual conditions. 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.
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).
Because the index of producer prices measures price changes at an early stage in the economic process, it can serve as an indicator of future inflation trends. The producer price index and its sub-indexes are often used in business contracts for the adjustment of recurring payments. They also are used to deflate other values of economic statistics like the production index. It should be noted that the PPI excludes construction. These price statistics cover both the sales of industrial products to domestic buyers at different stages in the economic process and the sales between industrial enterprises.
The PPI provides a key measure of inflation alongside the consumer price indexes and GDP deflators. 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 they 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.
Because the index of producer prices measures price changes at an early stage in the economic process, it can serve as an indicator of future inflation trends. The producer price index and its sub-indexes are often used in business contracts for the adjustment of recurring payments. They also are used to deflate other values of economic statistics like the production index. It should be noted that the PPI excludes construction. These price statistics cover both the sales of industrial products to domestic buyers at different stages in the economic process and the sales between industrial enterprises.
The PPI provides a key measure of inflation alongside the consumer price indexes and GDP deflators. 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 they 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.
