Producer prices fell for a fifth straight month in March. However, following a slightly steeper revised 1.1 percent drop in February, a 0.4 percent monthly decline was the smallest decrease of the sequence and slightly shallower than the market consensus. Annual inflation rose from minus 8.5 percent to minus 7.8 percent, its least negative reading since July 2023.

Moreover, March's monthly slide was again wholly attributable to energy where prices were down a further 1.8 percent. Excluding this category, the PPI was up 0.2 percent, its third consecutive increase albeit only enough to leave the yearly underlying rate steady at minus 1.3 percent. Elsewhere, capital goods, intermediates and consumer durables all increased 0.1 percent while non-durables rose 0.4 percent.

The March report provides further evidence that deflationary pressures in Eurozone manufacturing are on the wane. Core prices are still well below their level a year ago but the quarterly trend has clearly turned up. That said, the broader picture remains soft and the sector continues to pose few problems for ECB policy. The region's RPI now stands at minus 1 and the RPI-P at 10. Economic activity in general is essentially meeting market expectations while the real economy is running just marginally ahead.

Prices are seen falling 0.5 percent on the month after 1.0 percent drop in February.

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.