Industrial producer prices in the euro area continued its upward trend in February 2025, albeit at a slower monthly pace. Compared to January 2025, prices rose modestlyby 0.2 percent in the euro area, down from stronger increases in the previous month. On an annual basis, however, the picture was more robust, with prices up 3.0 percent in the euro area compared to February 2024.

Energy prices were the key driver, surging 7.4 percent year-over-year, reflecting ongoing volatility in global energy markets. While capital and consumer goods showed more moderate increases, intermediate goods and non-durable consumer goods each rose by 0.9 percent and 1.7 percent, respectively, signalling resilient demand across core industrial inputs. Excluding energy, industrial prices still rose by 1.4 percent over the year, suggesting that inflationary pressures remain broad-based, albeit more controlled.

The easing monthly growth may indicate stabilisation in producer costs, which could gradually relieve pressure on downstream inflation. However, persistently high energy costs underscore the importance of supply diversification and efficiency strategies to mitigate manufacturers against external shocks and enhance industrial competitiveness in the region. The latest update leaves the euro area RPI at minus 20 and the RPI-P at minus 11, meaning that economic activities are lagging behind market expectations of the bloc.

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.