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ANALYSIS: Producer Price Index as an economic indicator

This is an informative publication, sponsored by The Fiji Sun, Fiji Bureau of Statistics and HFC Bank. All views expressed or implied are purely of the Treasurer at the HFC
01 Aug 2015 10:55
ANALYSIS: Producer Price Index as an economic indicator
In 2014, sugarcane production was approximately 1.83 million metric tonnes of sugar was produced.

This is an informative publication, sponsored by The Fiji Sun, Fiji Bureau of Statistics and HFC Bank. All views expressed or implied are purely of the Treasurer at the HFC Bank, Peter Fuata.

 

Producer Price Index or PPI is a key economic indicator since it is the first indicator of inflation each quarter (Fiji’s PPI is calculated on a quarterly basis).

Movements in producer prices are clearly important for the measurement of inflation and the analysis of the process of inflation within an economy.

PPIs draw on the economic theory of production and the short-term rigidities in the production process, whilst Consumer Price Index [CPI] draw on the economic theory of consumer behaviour.

PPI is a family of indexes designed to measure the average change in the price of goods either as they leave the place of production or the producers’ premises.

Information contained in this release are used to estimate Gross Domestic Product at Constant Prices.

For the March quarter of 2015, the All Items PPI (Goods) index stood at 112.8.

This was a slight decline of 0.2 percentage points when compared to the same period in 2014 and 0.3 percentage points when compared to the December quarter of 2014.

Decrease in PPI for March quarter of 2015 was due to the decrease in the manufacturing industry in which manufacture of food products decreased by two per cent.

The food products category in the Manufacturing industry has the highest weight since it is volatile, thus, it has an impact to the “All Items” index movement in any given period.

 

Interpretation

There was an increase in mining and quarrying by 0.1 per cent and electricity and water stayed the same at 99.9.

An increase in the PPI will have a negative impact on the economy, businesses will have to pass cost increases to consumers and then those consumers suffer a loss in their standard of living.

On the other hand, if businesses bear the cost increase and not pass to consumers then their profits will fall and the price of their stocks may decline as a result.

In summary, the producer price index helps to give economists and investors information about the prices of goods and services early in the chain of production.

This information is helpful to businesses planning capital investment and long-range strategies, government agencies tracking overall economic trends, and investors looking for clues about inflationary pressure.

(Reference: Understanding Economic Data by Dan Caplinger)

Feedback: rachnal@fijisun.com.fj

 

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