Iran: Services PPI Inflation at 22.2% in Fiscal 2018-19

EghtesadOnline: The overall Producer Price Index for the services sector (using 2011 as the base year) stood at 296.5 in the last Iranian year (March 2018-19), indicating a 22.2% increase compared with the year before.

News ID: ۷۴۷۲۷۹

08 May 2019

Services PPI is calculated based on the indexes of eight subsectors, namely “repairing motor vehicles, motorcycles and home devices”, “hotels and restaurants”, “transportation, storage services and communications”, “brokerage (insurance) services”, “real estate, leasing and business”, “education”, “health services and social work” and “other public, social and personal services”.

PPI for “repairing motor vehicles, motorcycles and home devices” was 357.1 last year, indicating a 23.6% rise year-on-year, the Statistical Center of Iran reported.

The YOY rise for other subsectors is as follows, according to Financial Tribune:

For “hotels and restaurants”, the index stood at 404.8, posting a 27% rise.

For “transportation, warehousing services and communications”, the index stood at 351.4, registering a 34.1% rise.

For “brokerage financial services (insurance)”, it was 295, indicating a 21% rise.

For “real estate, leasing and business”, it stood at 220.7, registering a 13.3% rise.

For “education”, it was 285.5, posting a 16.1% rise.

For “health services and social work”, it stood at 422.9, indicating an 18.1% rise.

And, the PPI for the subsector of “other public, social and personal services” stood at 314.2, showing a 17.5% rise.

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), 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.

Furthermore, 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 the coming months. An almost 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.