Producer prices somewhat slow but still remain at 90% in November

• Monthly prices record first decline in many months 

 Producer prices retreated in November from over 100 percent increases seen relentlessly for many months, but the inflationary pressures still remain elevated at supplier levels with prices rising by 89.4 percent in the month from a year earlier period. 

The Producer Price Index (PPI) measures the level of inflation faced through the supply chain before it hit the end consumer, and hence provides some bellwether for where the next month’s consumer prices could end up.  

PPI declined by marginal 1.1 percent in November from a month ago after months of relentless increases. 

In December, the increase in the consumer prices measured by the Colombo Consumer Price Index slowed to 0.2 percent over November levels and prices measured on an annual basis eased for the third consecutive month to 57.2 percent from a peak of 69.8 percent in September. 

Both policymakers and consumers appear to be taking some relief from the back-to-back relatively soft consumer inflation reports. The monthly decline in producer prices could also add to the optimism that downward momentum would persist. 

This is because lower prices at producer levels will translate into lower sticker prices for consumers.

Producer prices at agriculture fell 0.4 percent from a month earlier while manufacturing prices slid 1.3 percent. The utilities sub-category comprising of electricity, gas, steam, air conditioning and water supply declined 1.2 percent. 

On an annual basis, the prices rose by 71.6 percent, 92.8 percent and 71.2 percent respectively under the three categories, reflecting the steep rise in prices consumers have to bear.  While the producers and suppliers have so far passed down much of these price pressure to the end consumer via sticker price revisions, they have reached a point where they could no longer do so without taking a hit on their toplines. 

A recent survey conducted for December showed that businesses are feeling the squeeze on their revenues from the demand destruction policies implemented since April onwards, including higher taxes.

The December earnings reports are expected to provide a closer view of how the listed companies have fared in their toplines, margins, operating costs and bottomlines. They will also provide cues as to what could be expected in 2023.  Meanwhile, the government is facing a huge backlash from the public against the sharp increase in personal income taxes at a time when people have already been hit by the cost of living crisis to the highest.