Producer price rise in April primarily in exporting branches

The month-on-month producer price rise of 0.9% in April 2012 was determined by the contribution of manufacturing: the producer prices in this branch rose by 1.2%. A similar price rise was observed also in water supply and waste management, but the proportion of this branch in the price index is much smaller. In the producer price rise in manufacturing the impact of processing of wood pulp and metal was dominant -- and primarily as regards products for the external market. The contribution of wood pulp production could in part be a reflection of the rise in the prices of some wood pulp products in the world markets, but in the case of metal production short-lived opposite fluctuations (in March and April) took place and may have been related with larger scale orders of some products and manufacturing different products for the external market in the two months at hand (the available data suggest a significant rise in prices in the branch at large yet a rather moderate price dynamics in the domestic market). In other sub-branches of manufacturing as well as in energy supply rises were not as pronounced (Fig. 1).

Figure 1. Contribution of main industries to the monthly PPI, in pp

Last April the energy resource driven (electric power appreciated) producer price rise was much steeper and that determined a drop in the rate of annual rise in producer prices to  4.0% this year. The PPI annual changes for the production sold in different markets were asymmetrical this April. It dropped to 5.6% for the products sold domestically, since energy resources tend to be mostly sold domestically, and the base impact was favourable. For the exported production, on the other hand, it increased to 1.8%, for the manufacturing products dominate exports and the prices of these products increased substantially in April (Fig. 2).

Figure 2. Changes in producer price index, %

The pressure of producer prices on inflation is thus currently abating somewhat, yet transferring the higher beginning-of-the-year costs to prices has a detrimental effect on the positions of those exporters who have a high energy component in their costs. The producer prices of waste removal and processing for the external market grew substantially (3.3% within a month), and that too had a negative effect on the further development of the producer price index.

It must be noted that at the moment the dynamic of global food and energy prices is favourable and will promote the inflation dropping in Latvia both directly – through import prices for consumption goods and indirectly – by lessening the pressure on rising costs in production through the prices of the imported resources.