The December 2024 producer price report for the French home market reflects a cooling trend in industrial price growth, suggesting a shift in market dynamics. Over the month, producer prices rose by 1.0 percent, but this increase was significantly lower than in November's 3.7 percent revised surge, indicating a sharp deceleration in key sectors. The most notable slowdown in prices was in mining and quarrying, as well as energy and water, as they rose by 3.2 percent compared to 13.3 percent in November, suggesting easing cost pressures in energy-intensive industries. Meanwhile, manufactured product prices remained virtually unchanged (0.1 percent), reflecting stable production costs amid slowing demand.

On a yearly basis, producer prices declined for the thirteenth consecutive month (minus 3.8 percent), continuing a downward trend from November (minus 4.7 percent) and October (minus 5.9 percent). This prolonged decline suggests producers are adjusting pricing strategies in response to lower input costs and subdued domestic demand. However, despite this downward correction, prices remain 26 percent above their 2021 average, underscoring the lasting impact of post-pandemic inflation and energy price shocks.

Overall, the data signals a stabilising industrial landscape, where supply-side pressures are easing, but historical price increases still shape cost structures in French industry, taking the RPI to minus 7 and the RPI-P to 0. This means that economic activities are generally within the estimates of the French economy.

The producer price indices (PPI) measure transaction prices, exclusive of VAT, for goods from industrial activities sold on the French market. Construction is excluded. 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.

The PPI provides a key measure of inflation alongside the consumer price indexes and GDP deflators. The output price indexes measure change in manufacturer' goods prices produced and often are referred to as factory gate prices. Input prices are not limited to just those materials used in the final product, but also include what is required by the company in its normal day-to-day operations.

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.