Release Explanation: The PPI measures the rate of inflation of manufacturers when purchasing Goods and Services; the rate of Inflation at the factory Gate. An increase in the price of raw Goods and services usually gets passed on to the consumer, therefore this is the first stage on Retail Inflation.
Trade Desk Thoughts: The Euro-area PPI shows that the pace of inflation is dropping at a sustained pace. Producer prices fell 0.8% in January, following a 1.5% (revised) drop just one month prior.
The PPI read, excluding the energy sector, fell by 0.6% in January, at a similar pace as in the last three months. The year over year PPI read has fallen to -0.5%, from 1.2% in December, the biggest year-over-year drop since 2002. January was the sixth consecutive month in which the index contracted, the longest streak in more than a decade.
The release puts additional pressure on the ECB to raise the inflation expectations over the medium term. The drop seen in the last period was huge, since just a few months back, the PPI index toped at 9.2%. These deflationary pressures will likely be passed on to the CPI, which is also expected to drop below the zero benchmark in the upcoming period.
Forex Technical Reaction: The euro was unmoved by the release. The pair is trading 60 pips below the Asian opening price, and close to the neutral pivot point (1.2770).