Producer prices in June rose for the first time since last October. Following an unrevised 0.2 percent monthly drop in May, the headline index climbed fully 0.5 percent, a tick above the market consensus and matching its steepest gain since August 2023. Annual inflation increased from minus 4.1 percent to minus 3.2 percent, its least negative reading since June 2023.

However, much of the work was done by energy where prices were up a monthly 1.6 percent. Excluding this category, the PPI was again just 0.1 percent firmer, leaving the yearly core rate still sub-zero, albeit only just, at minus 0.1 percent after minus 0.4 percent. Intermediates as well as capital goods and consumer non-durables were up just 0.1 percent versus May while consumer durables were only flat.

The June data mean that the core PPI has now risen for six consecutive months. Prices are still marginally weaker on the year but recent developments are consistent with a Eurozone manufacturing sector that, while still soft, is at least over the worst. That said pipeline inflation pressures in the sector remain too limited to worry the ECB. The region's RPI now stands at 30 and the RPI-P at 16, both gauges showing economic activity in general still performing rather more strongly than market forecasts.

Producer prices have shown sustained weakness and are expected to fall 3.5 percent on the year in June which would compare with 4.2 percent contraction in May. The monthly showing, at a consensus gain of 0.4 percent in June, fell 0.2 percent in May which was a seventh 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.