SCI Reports on Iran's Q3 Industrial, Mining Producer Inflation

According to an SCI report published on Monday, the average PPI for the mining sector in the yearlong period to Dec. 21, 2018, which marks the end of the third quarter of the current fiscal year (March 2018-19), increased by 41.9% compared with the same period of last year. 

The sector’s average PPI for the yearlong period to Sept. 22, the end of Q2, had increased by 30.8% year-on-year.

The overall PPI of mining sector (using 2011 as the base year) stood at 380.4 in Q3, indicating a 17.2% increase compared with the previous quarter and 62.2% growth over the same quarter of last year, according to Financial Tribune.

The “extraction of metal ores” subsector had the biggest impact on the 17.2% rise in producer inflation of mining sector in Q3. It increased by 19.9% compared with the preceding quarter to reach 409.2 from 341.2 in Q2. The rise is mostly driven by a 79.8% increase in the activities of “extraction of copper ores”. 

PPI for “extraction of copper ores” in Q3 reached 240.1, registering a 79.8% rise compared with the quarter before. The rising price index for “extraction of copper ores” in Q3 is chiefly due to the increase in the prices of “copper concentrates”. 

The industrial sector's PPI in the year ending Dec. 21, 2018, grew by 47.3% compared with the same period of last year, according to SCI. 

The sector’s PPI for the yearlong period to Sept. 22 had increased by 32.9%. 

The overall PPI of the industrial sector stood at 420.4 in Q3, indicating a 23.5% increase compared with the previous quarter and 73.2% growth over the same quarter of last year.

The rise in industrial PPI is mostly driven by the increase in producer inflation of “coal production industrial-oil refineries” subsector, which stood at 478, posting a 47.5% rise compared with the previous quarter. 

A 47.5% rise in producer inflation of “production of refined petroleum products” in Q3 is chiefly to blame for the increase in producer index of “coal production industrial-oil refineries” subsector. 

PPI vs. CPI

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 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 face input inflation, 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 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.

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.

The Statistical Center of Iran's latest inflation report, though, shows the goods and services CPI registered a year-on-year increase of 39.6% in the Iranian month Dey (Dec. 22, 2018-Jan. 20) compared with the similar month of last year.

SCI had put YOY inflation of the preceding month, Azar, which ended on December 21, at 37.4%.

The overall CPI (using the Iranian year to March 2017 as the base year) stood at 154.7 in Dey, indicating a 2% rise compared with the previous month.

The month-on-month inflation was put at 2.6% for the preceding month. 

The average index in the 12-month period ending Jan. 20 increased by 20.6% compared with last year’s corresponding period. 

SCI had put the average 12-month inflation rate for the preceding month of Azar at 18%. 

The index registered a year-on-year increase of 39% for urban areas and 42.7% for rural areas compared with the similar month of last year. 

SCI put the average 12-month inflation of urban and rural areas in Dey at 20.6% and 20.9% respectively. 

The overall CPI reached 154.1 for urban households and 158.4 for rural households, indicating an increase of 2% for both urban and rural areas compared with the previous month.