PPI Inflation Hike Alarming

EghtesadOnline: The producer price index (using Iranian year to March 2012) stood at 271.2 for the month ending May 21 (the second Iranian month of Ordibehesht), increasing by a four-year high of 1.8% compared with the previous month.

News ID: ۷۴۵۴۲۲

03 June 2018

The monthly PPI growth, as reported by the Central Bank of Iran, hit levels higher than 3% in a month ending May 21, 2014. Since then, it never increased beyond 1.7%, which makes its 1.8% growth alarming.

The overall CPI (using the Iranian year to March 2017 as the base year) stood at 117.5 in Ordibehesht, indicating a 1.6% increase compared with the previous month. The index registered a year-on-year increase of 9.7% compared with the similar month of last year, the Persian economic daily Donya-e-Eqtesad reported.

A year-on-year increase of 14.8% was registered in the PPI index compared with the similar month of last year, a rise not seen since Sept. 22, 2014, according to Financial Tribune.

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.

The economic team of President Hassan Rouhani managed to gradually rein in the runaway inflation rates of above 40% inherited from the previous administration and bring it down to single digit territory for the first time after about a quarter century in June 2016.

The rate has been hovering around 10% ever since, but the increasing rate of PPI inflation is stoking concerns that CPI inflation may be on the rise again.

The CBI report shows producers of “industry”, “agriculture” and “hotels and restaurants” sectors saw increased inflation of above 2% last month.

PPI for the industrial sector increased by 2.3% in Ordibehesht compared with a month before–the highest PPI increase of all groups. Industries also posted the highest year-on-year inflation of all sectors to reach 18.6%.

The last time industrial PPI reached such levels dates back to Dec. 22, 2013-Jan. 20, 2014, when it hit 18.5%. Since then, it never went beyond 16%.

The rise in producer prices can be partly blamed on depreciation of the rial and its effect on the prices of intermediate goods. Iran has been dealing with an increasing devaluation of its currency in recent months.

The monthly PPI for agriculture sector and “hotels and restaurants” increased by 2.2% and 2.1% respectively to put them among top three sectors (after industry) with highest growth in the index last month.

At the other end of the spectrum, the educational sector posted the lowest monthly PPI growth with 0.3%. The sector posted the year-on-year increase of 14% compared with the same month of last year.

Producer Price Index gauges the price fluctuations of goods and services for the producer whereas Consumer Price Index measures changes in the price level of a basket of consumer goods and services purchased by households.

PPI in the 12 months ending May 21 increased by 11.3% compared with last year’s corresponding period while the central bank reported that the 12-month CPI, ending May 21, increased by 9.1% compared with last year’s corresponding period.