Economy, Domestic Economy

PPI Rates at Record Low

PPI Rates at Record LowPPI Rates at Record Low

Latest reports on Producer Price Index (PPI) have revealed that from August 23 to September 22 (sixth month of the Iranian calendar), monthly average and point-to-point inflation rates for production have registered record lows.

Recent reports by the Central Bank of Iran (CBI) suggest that producer price index has plunged to its record low of 7 percent in a six-month period since the beginning of the current Iranian year (March 21). In the meantime, average annual inflation rate of production has hit the lowest in the past 30 months at 4.20 percent, while point-to-point inflation rate that has reached its lowest at 4.15 percent since the first phase of the subsidy reform plan was enforced four years ago.

The recent decline in production inflation rate which indicates a return to the figure before the enforcement of subsidy cuts in 2010 suggests that production costs have been curbed, leading to a decline in the consumer inflation rate.

According to the CBI report, PPI reflects the status of prices of commodities required for production as well as production costs. Normally, PPI changes are reflected in Consumer Price Index (CPI) within a short interval. In economic literature, CPI is interpreted as “inflation”, however, in journalism PPI is also referred to as “second inflation” as it can provide a forecast on the future of CPI. Thus, any decline in PPI can reduce expectations of inflation on the part of consumer.

CBI’s recent report of PPI status indicates that the index has reached 1.206 unit based in the period August 23–September 22. In the month before, the figure was 7.204 units. Thus, producer inflation rate during August 23–September 22 was 7 percent, the lowest level in the past 6 months.

In the beginning of the current Iranian year (starting March 21), the second inflation rate grew as a result of the increase in fuel prices. According to CBI, in the period March 21–April 21, monthly PPI rate was 5.2 percent and in the period April 22–May 21, the figure reached 7.3 percent. The trend reversed from May 22 until September 22, reaching a record low of 7 percent.  

Point-to-point PPI rate, which indicates the changes of producer inflation in one month compared with the similar period last year, also registered decline in the same period.

CBI statistics indicate that point-to-point PPI rate in the month of Shahrivar (August 23–September 22) reached 4.15 percent while the figure for the previous month was 4.16 percent, recording lowest since January 2011. In fact, the figure has been restored to the period before the enforcement of the first phase of subsidy cuts. Concurrent decline in production costs and exchange rate could be a positive signal for exporters as it increases their competitiveness against foreign rivals helping to increase non-oil exports.

Average annual PPI rate has also registered decline from 7.22 percent in the period July 23-August 22 to 4.20 percent in the period August 23–September 22 recording lowest since May 22 this year. In fact, the figure has declined by 9.24 units (3.4 percent) from its highest record in October 2013, which is significant as it was achieved in a period less than a year.

Average annual inflation rate is calculated based on PPI changes in the 12 months ending September 22 compared with the previous year. Therefore, it encompasses a larger span of time compared with monthly and point-to-point ones.

Other reports by CBI covering five and six-month periods confirm the declining trend as well.

PPI grew by 3.17 percent in the first half of the current Iranian year (March 21 – September 22) compared to the similar period last year while the figure for the first five months of the current Iranian year (March 21–August 22) compared to the similar period last year registered 7.17 percent increase.