The Producer Price Index for the “agronomy, horticulture and traditional husbandry” group in the year to March 20, 2019, which marks the end of last Iranian year, increased by 47.8% compared with the year before, new data released by the Statistical Center of Iran show.
The overall PPI of this group (using 2011 as the base year) stood at 368.5 in Q4, indicating a 60.5% increase year-on-year.
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 the 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 roles in improving investment-making decisions because it can serve as a leading indicator of CPI.
When producers are faced with input inflation, those rising costs are passed along to the retailers and eventually to the consumer.
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 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.
However, 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 future months. 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 Iranian year, increased by 26.9% compared with last year’s corresponding period.
