| Actual | Previous | |
| Month over Month | 0.3% | 5.9% |
| Year over Year | 6.8% | 5.4% |
Highlights
Producer prices rose 0.3 percent in April from their levels in March, while rising 6.8 percent year-on-year compared to a 5.4 percent rise the month before, with energy prices the main contributor to the increase.
Although they fell 0.2 percent month-on-month, energy prices are 22.8 percent higher than they were a year ago, as the conflict in the Middle East continues to affect the sector. The magnitude of this is apparent when looking at PPI excluding energy which was up 0.5 percent on the month and 1.7 percent year-on-year. Small comfort to energy intensive industries.
Production costs for consumer goods were 0.1 percent higher in April than the month before and 0.9 percent higher from a year ago. Consumer durables output costs rose 0.6 percent in April, month-on-month, and 5.7 percent year-on-year.
Capital- and intermediate goods saw their year-on-year costs rose 1.3 percent and 2.8 percent respectively.
With the conflict continuing through May, production costs will show no signs of letting up. Anecdotal evidence from PMIs has shown that producers for the time being are trying to restrain themselves from passing along increases to customers. The longer the hostilities continue, the more untenable that will become and bleed into the broader price index.
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.