Monthly data are subject to revision four months after publication. Annual revisions are released in February and are made available to the public with the release of January data, going back the past five years.
The Producer Price Index is a measure of changes in prices that manufacturers and wholesalers pay for goods at different stages of production. Inflation at any point here could end up being passed on to retail. After all, if sellers have to pay more for goods, they are more willing to pass on the higher costs to consumers.
The producer price index is not just an index, it is a family of indexes, which are price indexes at each stage of the three progressive processes of production: raw materials, intermediate goods and finished products. The last one that grabs all the headlines and has the most impact on financial markets is the PPI for finished goods. It represents the final state of these goods before being shipped to wholesalers and retailers. Prices in the final state of production are often determined by price pressures encountered in raw materials and intermediate products. This is why it is important to observe all three processes.
Impact on exchange rates
The rise in PPI is a good signal for traders in the foreign exchange market. After all, the dollar benefits from a slight rise in inflation. Because this also prompted an increase in short-term interest rates in the United States. However, a report of rapidly rising inflation could damage the value of the dollar, as an aggressive Fed response could threaten overall U.S. growth. Broadly speaking, a gradual rise in inflation, accompanied by appropriate tightening, is likely to lead to an appreciation of the dollar.
In May 2013, PPI fell by 2.9% year-on-year, the decline hit an 8-month low
The risk of deflation looms
On June 9, data released by the National Bureau of Statistics It shows that China's industrial producer price (PPI) fell by 2.9% year-on-year in May, an increase of 0.3 percentage points from the previous month, hitting an 8-month low. Zhu Haibin, chief economist of JPMorgan Chase China, said that the reasons for the sharp decline in PPI mainly include two points. From a domestic perspective, the manufacturing industry continues to be weak, and some key industries have serious overcapacity problems, and inventories have once again climbed to very high levels, putting downward pressure on producer prices; from an external perspective, global commodity prices have declined in recent months. Keep falling. In the past three months, the overall level of the JP Morgan Commodity Index has fallen by 6.9%.
The year-on-year decline in the ex-factory prices of upstream, midstream and downstream industrial products in May showed a trend from large to small, and the gap between them continued to widen compared with the previous month. The Bank of Communications report pointed out that in May, the year-on-year price gap between the prices of mining and raw materials, raw materials and processing industries, processing industries and daily necessities widened to 3.9%, 2.4% and 2.8% respectively. This means that the performance differences among the upstream, midstream and downstream industries of industrial production have recently increased. The prosperity of the midstream and upstream industries has deteriorated significantly, while the relatively stable downstream industries have failed to effectively support the demand of the upstream industries.
When analyzing the May PPI, Hu Chi, a researcher at the Research Center of the State-owned Assets Supervision and Administration Commission, said that the data shows that the expansion of total demand is still insufficient, and the overcapacity situation of supply-side enterprises is still very serious, and the process of "capacity reduction" has been repeated. More than people expected. If the PPI continues to decline, deflation will become a more concerning issue.
Haitong Securities analyst Jiang Chao also said: Inflation has fallen sharply and PPI has fallen into deflation. Inflation pressure will be significantly weakened in the future, and because the central bank’s policies have continued to be tight recently, we need to be more vigilant about the risk of deflation.
Insufficient growth momentum
Chinalco recently issued an announcement announcing that it would temporarily shut down approximately 380,000 tons of electrolytic aluminum production capacity. Recently, Yunnan Aluminum, Xinheng Group and other aluminum companies have also announced production cuts like Chinalco.
Executives of Jinchuan Group, China’s third largest copper producer, said on May 24 that the company had closed its smelting facility with an annual production capacity of 200,000 tons. The move could reduce the company's refined copper output by more than 16% this year. Earlier, Yunnan Copper, the fourth largest domestic copper producer, announced production cuts. The steel industry also has the same trend. According to statistics, the blast furnace operating rate of Tangshan Steel Plant was 91.03%, a decrease of 1.92% compared with last week's survey. This data is also the lowest for more than seven consecutive months since November last year.
Insufficient economic growth momentum and worrying profit prospects are the reasons why many industries have taken the initiative to adjust. Zong Liang, deputy general manager of the Strategic Management Department of the Bank of China, said that in the past, when the economy overheated, there would be excess production capacity, but as long as a period of time passes, investment recovery demand will pick up again, and the overcapacity will gradually be eliminated.
“The premise for this model to be cyclical is that the economy must maintain high-speed growth.” Zong Liang said that since China has reached a critical period of economic structural transformation, it is unlikely to maintain the previous double-digit high-speed growth. When overcapacity encounters structural adjustment, the transformation of overcapacity requires a relatively long digestion period.