Producer prices fell for a sixth straight month in April. Following a slightly steeper revised 0.5 percent drop in March, the headline index decreased 1.0 percent, double the market consensus and the second steepest decline since the current downswing began back in November. However, with base effects strongly positive, annual inflation still rose from minus 7.8 percent to minus 5.7 percent, its least negative reading since June 2023.

That said, in line with March, April's monthly slide was again wholly attributable to energy where prices were down a further 3.6 percent. Excluding this category, the PPI was up 0.2 percent, its fourth consecutive increase and large enough to lift the yearly underlying rate from minus 1.3 percent to minus 1.0 percent. Capital goods and consumer durables were up 0.2 percent, intermediates 0.3 percent and consumer non-durables 0.1 percent.

The April report adds to the increasing weight of evidence pointing to an easing in deflationary pressures in Eurozone manufacturing. Core prices are still well below their level a year ago but the trend is clearly 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 exactly zero and the RPI-P at minus 14. Economic activity in general is meeting market expectations while the real economy is running just slightly behind.

Producer prices have shown sustained weakness and are expected to fall 5.1 percent on the year in April which would compare with 7.8 percent contraction in March. The monthly showing, at a consensus minus 0.5 percent in April, fell 0.4 percent in March which was the fifth straight decline.

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.