Producer prices rose a further 0.2 percent on the month in April, their third increase in 2024 to date but a tick short of the market consensus. However, annual PPI inflation still fell on the back of negative base effects and at minus 3.3 percent after minus 2.9 percent, the rate remained sub-zero as it has been every month since the middle of 2023.

Energy prices were only 0.1 percent lower on the month and so had just a limited impact on the overall change. Excluding this category, the PPI was up a monthly 0.3 percent, matching its March advance and lifting the annual underlying rate from minus 0.8 percent to minus 0.6 percent. Elsewhere, intermediates rose 0.3 percent while consumer durables increased 0.1 percent, non-durables 0.3 percent and capital goods 0.2 percent.

In line with recent months, today's report suggests that deflationary pressures in manufacturing are on the wane. Still, the sector remains weak and core prices face stiff market competition. The April data trim the German RPI to 11 and the RPI-P to 20 but both readings continue to show economic activity in general performing rather more strongly than expected.

After edging 0.2 percent higher on the month in March, April's PPI is seen rising 0.3 percent. Year-over-year, the PPI is expected to fall 3.1 percent versus 2.9 percent contraction in March.

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.

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.