December 2024 saw industrial producer prices rise by 0.4 percent in both the euro area and the EU, marking a slowdown from November's 1.7 percent increase. Energy costs played a significant role in this trend, with a 1.4 percent increase in energy prices, while other industrial goods saw only marginal gains. Excluding energy, overall industry prices remained stable, suggesting underlying price pressures are subdued.

On a year-over-year basis, prices remained flat in the euro area in line with consensus expectations and edged up by 0.1 percent in the EU, reflecting a lack of inflationary momentum. This was largely driven by energy prices which fell by 1.7 percent. Capital goods (1.4 percent), durable consumer goods (0.8 percent), and non-durable consumer goods (2.0 percent) saw notable price increases, hinting at resilience in consumer-driven sectors. However, the subdued growth in intermediate goods (0.1 percent) signals weak demand pressures in the industrial supply chain.

Overall, while short-term price movements indicate a slow rise in prices, the annual figures highlight some lingering weakness in industrial demand and energy price volatility, raising questions amid cautious business sentiment. The latest updates lift the RPI to 9 and the RPI-P to 13, meaning that economic activities are slightly ahead of market expectations in the Euro Area.

PPI is expected flat on year in December after dropping 1.2 percent in November.

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.