SCI Examines Producer Price Changes in Services Sector

EghtesadOnline: The overall Producer Price Index for the services sector (using 2011 as the base year) stood at 373.1 in the second quarter of the current Iranian year (June 22-Sept. 22), indicating a 7.3% increase compared with the preceding quarter and a 30.9% rise compared with the same quarter of last year.

News ID: ۷۸۴۹۹۳

04 November 2019

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

PPI for the subsector of “repairing motor vehicles, motorcycles and home devices” stood at 466.6, indicating an 8.3% rise compared with the previous quarter and a 39.4% growth compared with the same quarter of last year, according to data reported by the Statistical Center of Iran.

“Hotels and restaurants” PPI was 586.4, posting an 8.7% rise quarter-on-quarter and a 57.3% rise year-on-year, Financial Tribune reported.

“Transportation, warehousing services and communications” PPI stood at 479.1, registering a 9.9% increase QOQ and 41.9% YOY.

“Financial brokerage (insurance)” PPI was 369.9, indicating a 0.8% rise compared with the previous quarter and a 26.2% increase compared with the same quarter of last year.

“Real estate, renting and business”’ PPI stood at 257.9, registering a 5.2% rise QOQ and a 19.8% increase YOY.

“Education” PPI stood at 314.6, posting a 1.4% rise compared with the previous quarter and an 18.4% increase compared with the same quarter of last year.

“Health services and social work” PPI index stood at 512.4, indicating a 10.5% rise over the previous quarter and a 23.3% increase over the same quarter of last year.

PPI measured for the subsector of “other public, social and personal services” stood at 379.2, showing a 6.9% growth compared with the previous quarter and a 23.9% increase over the same quarter of last year.

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 industries 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, those rising costs are passed along to the retailers and eventually to the consumer.

Furthermore, PPI presents the inflation picture from a perspective different from 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.

According to the Statistical Center of Iran's latest report, the average goods and services Consumer Price Index in Iran for the 12-month period ending Oct. 22 increased by 42% compared with last year’s corresponding period.

SCI had put the annual inflation rate for the preceding Iranian month, which ended on Sept. 22, at 42.7%.

The overall CPI (using the Iranian year to March 2017 as the base year) stood at 184.9 last month, indicating a 1.7% rise compared with the month before.

The consumer inflation registered a year-on-year increase of 28.3% compared with the similar month of last year.

The CPI index registered a year-on-year increase of 28.3% for urban areas and 28.5% for rural areas compared with the similar month of last year.

The overall CPI reached 184.2 for urban households and 188.6 for rural households, indicating a month-on-month increase of 1.9% and 0.8% for urban and rural areas, respectively.

SCI put urban and rural 12-month inflation for the month under the review at 41.3% and 46.3% respectively.