EghtesadOnline: The industrial sector's average Producer Price Index in the year ending March 20, 2019 (the final day of the last fiscal year) grew by 64.6% compared with the same period of the year before.
According to the Statistical Center of Iran, the overall PPI of industrial sector stood at 479.9 in Q4, indicating a 14.1% increase compared with the previous quarter and an 89.2% growth over the same quarter of the previous year.
The rise in industrial PPI was mostly driven by a rising producer inflation in “coal production industries-oil refineries” subsector, which reached 538.2, posting a 12.6% rise compared with the quarter before.
The second biggest driver of the sector in Q4 was PPI for “base metals”, which rose 25.2% to reach 464.4 in Q4, according to Financial Tribune.
The producer inflation for “motor vehicles, trailers and semi-trailers”, the third chief driver of industrial PPI, grew by 25.2% compared with the previous quarter’s index to reach 402.7 in Q4.
The importance of PPI lies in its predictive content for the future pattern of Consumer Price Index. Changes in PPI are usually reflected in CPI within a short period of time.
PPI gauges price fluctuations of goods and services for the producer whereas CPI measures changes in the price level of a basket of consumer goods and services purchased by households.
In other words, PPI is an index of prices measured at the wholesale, or producer level. It shows trends within the wholesale markets (as it was once called the Wholesale Price Index), production industries and manufacturing industries and commodities markets from the perspective of the seller.
According to Investopedia, PPI can serve multiple purposes for improving investment-making decisions because it is a leading indicator of CPI.
When producers face input inflation, the rising costs are passed along to retailers and eventually to the consumer.
Furthermore, PPI presents the inflation picture from a different perspective than CPI. Although changes in consumer prices are important for consumers, tracking PPI allows one to determine the cause of the changes in CPI.
If, for example, CPI increases at a much faster rate than PPI, such a situation could indicate that factors other than inflation may be causing retailers to increase their prices.
But if CPI and PPI increase in tandem, retailers may be simply attempting to maintain their operating margins.
All in all, a decrease in PPI is one of the signs of a probable slowdown in CPI in the months ahead. Almost a perfect correlation exists between CPI and PPI.
According to the Statistical Center of Iran, the goods and services Consumer Price Index in the 12-month period ending March 20, which marks the end of last fiscal year, increased by 26.9% compared with last year’s corresponding period.