Upward pressure of energy prices on producer prices also in near term

The rising energy prices are driving producer prices up: in May against April, the latter posted an increase of 1.0% (a 7.8% rise year-on-year). Similar to April, more costly production of energy due to the increase in natural-gas prices was primarily responsible for the elevation (2/3 of monthly rise) in the producer price index in May. In the near future, the hiking energy prices are expected to exert an upward pressure on production costs of other sectors as well, energy intensive ones in particular. Nevertheless, the producer price dynamics in some sectors reflect global stabilisation trends and even a decline in resources prices, with those of metal production and wood processing having dropped. Food producer prices, on the other hand, kept on climbing, albeit at a slower pace than at the beginning of the year.

This persistent and rather steep growth in producer prices, particularly for domestically  production for domestic market, suggests that producers continue to move the effects of rising raw material prices completely towards the consumer. This is well demonstrated also by consumer price dynamics. The elevated level of inflation expectations (consumers expect higher prices and see the underpinning factors), on the one hand, enable businesses, both manufacturing and retailing, to push up prices easily. On the other hand, the domestic demand is still weak, hence shifting a major part of increased costs onto consumers is indicative of a rather slack competition and company efforts to improve corporate profitability.

Looking ahead, ever more costly energy resources are going to affect the dynamics of both producer and consumer prices. It is, however, expected that the ongoing global balancing of energy prices will make price pressures recede.  

APA: Kalnbērziņa, K. (2022, 27. may.). Upward pressure of energy prices on producer prices also in near term. Taken from https://www.macroeconomics.lv/node/2322
MLA: Kalnbērziņa, Krista. "Upward pressure of energy prices on producer prices also in near term" www.macroeconomics.lv. Tīmeklis. 27.05.2022. <https://www.macroeconomics.lv/node/2322>.

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