| Actual | Previous | |
| Month over Month | 5.9% | -0.8% |
| Year over Year | 5.4% | -3.7% |
Highlights
Pipeline inflation is heating up, with producer prices on the domestic market increasing 5.9 percent in March compared to the previous month as, no doubt, the conflict in the Middle East is pressuring prices. Compared to March of last year, prices are up 5.4 percent. The results are in stark contrast to February when PPI fell 0.8 percent month-on-month and 3.7 percent year-on-year.
Energy prices were up 16.7 percent from a month ago and 13.4 percent higher than their year ago levels. Excluding energy, overall prices were up 0.4 percent month-on-month and 1.5 percent year on year. Even with the core rate far more moderate, the fact is that energy prices will find their way into the broader economy.
Consumer goods prices at the factory gate were 0.3 percent higher domestically than in February while increasing 0.4 percent year-on-year. Capital goods were 0.2 percent more expensive than a month ago and 1.2 percent higher than March of last year, while intermediate goods prices climbed 0.8 percent in March and 2.4 percent over a year ago.
Overall prices including foreign markets rose 4.4 percent month-on-month and 4.2 percent year on year.
There is no getting around the economic pain the conflict in the Middle East is causing on industry, and higher factory gate prices will certainly bleed into the broader economy. Later this week, major European economies will report their consumer price inflation results for April, and the consensus around the Eurozone result is for a 3.1 percent increase over April of last year. This will get the attention of Central Bank policy makers.
Definition
The producer price indices (PPI) measure transaction prices, exclusive of VAT, for goods from industrial activities sold on the Italian 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.
Description
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.