Producer prices rose a surprisingly strong monthly 0.5 percent in November, more than double the consensus and boosting annual inflation to 0.1 percent. This is the first yearly increase since June 2023. The yearly gain was driven primarily by capital goods and non-durable consumer goods. Notably, capital goods increased by 1.9 percent annually. Non-durable goods also saw price hikes, whereas cereal flour (minus 7.7 percent) and pork (minus 6.4 percent) recorded declines.

Energy prices fell 2.4 percent year-over-year but rose 1.8 percent from October 2024. Despite slight monthly increases, mineral oil products were a major factor in the annual decline. Electricity prices rose 4.0 percent month-over-month but remained 3.1 percent lower year-over-year. Intermediate goods rose 0.4 percent annually but dropped 0.3 percent from October. Materials like stone, gravel and coniferous timber saw annual increases, while non-coniferous timber and particle boards declined.

Despite the headline rise, with core prices dipping 0.1 percent versus October the latest update shows underlying pipeline pressures still very subdued. Today's update lifts the German RPI to 10 and the RPI-P to 4. This means that economic activity in general is performing broadly as expected.

Forecasters expect PPI up 0.2 percent and down a modest 0.3 percent on year as wholesale price deflation is fading away.

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.