Central Bank of Iran: Slight Decline in Producer Inflation

EghtesadOnline: A decrease of 2.4 percentage point was registered in the Producer Price Index for the Iranian month ending April 19 compared with the preceding month (Feb. 20-March 19), according to Governor of the Central Bank of Iran Abdolnasser Hemmati.

News ID: ۷۴۹۹۶۸

04 May 2020

The monthly producer inflation decreased from 1.6% in the month ending March 19 to -0.8% in the month ending April 19.

“Year-on-year producer inflation reached 20.9% for the month under review, indicating a 2.9 percentage point decline compared with that of the month before,” Hemmati was quoted as saying by the CBI website.

"Given the forward-looking nature of PPI, a decline in Consumer Price Index and inflationary expectations would be down the line," he added.

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, as well as 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, 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.

Consumer Inflation at 32.2%

The average goods and services Consumer Price Index in the 12-month period ending April 19 increased by 32.2% compared with the corresponding period of the year before, latest data released by the Statistical Center of Iran show.

SCI had put the average annual inflation rate for the preceding Iranian month, which ended on March 19, at 34.8%.

The average annual inflation has been on a downtrend since the middle of last Iranian year (March 2019-20).

The consumer inflation for the month under review (March 20-April 19) registered a year-on-year increase of 19.8% compared with the similar month of the previous Iranian year.

The overall CPI (using the Iranian year to March 2017 as the base year) stood at 204.8 last month, indicating a 2.1% rise compared with the month before.

CPI registered a year-on-year increase of 20.2% for urban areas and 18.1% for rural areas in the month ending April 19.

The overall CPI reached 203.4 for urban households and 212.6 for rural households, indicating a month-on-month increase of 2% and 3.1% for urban and rural areas, respectively.

SCI put the average annual inflation for the month under review for urban and rural areas at 31.9% and 33.9% respectively.

The highest monthly growth in the index among 12 groups of the basket of consumer goods and services purchased by households in the Iranian month was recorded for food and beverage with 5.2%, while the education group registered no month-on-month change.