Producer prices accelerate to 0.9% reflecting still prevailing inflationary pressures

• Producer prices rose by over 100% in October on an annual basis

The producer prices in the country continued to charge ahead with little signs of slowing as such prices in October climbed further 0.9 percent from a month earlier, accelerating from 0.4 percent in the month before. 
According to the Producer Prices Index (PPI) measured and published by the Census and Statistics Department with a 40-day lag from the end of the month showed continued high price pressures faced by local producers across their supply chains although consumer prices trended down in the last two months after peaking at 70 percent in September.

Prices in agricultural production rose by 1.2 percent and the manufacturing sector by 0.5 percent while the utilities category consisting of electricity, gas, steam, air conditioning and water supply rose the most by 9.0 percent from the previous month.
Measured on an annual basis however, producer prices rose by 100.4 percent in October, compared to 104.1 percent in September reflecting some easing from a year ago, but continuing with the months-long rise in prices above 100 percent, similar to hyperinflation facing the producers.

The price movements measured on a monthly basis reflect better on where the near-term prices could be heading. 
Producer prices indicate inflation at the producer level before such pressures are being felt or passed down to the end consumer, hence the PPI is typically a bellwether for the near term consumer price index. 
Producers mostly raised their prices during last three years to offset the cost pressures coming from supply chain snarls, dollar shortage and relatively higher demand for goods, 

but the dichotomy between the two indexes reflect that not all costs facing them were able to be passed down, resulting in a margin and a profit squeeze. 
Typically October producer prices are better reflected in the November consumer price report which rose by 61.0 percent in November, decelerating from around 66 percent in October, reflecting the similar easing trend seen in producer prices in October, in spite of its gap. 

Therefore, still there is a possibility that inflation could rebound from the current levels although officials believe the prices have now turned to a disinflation path as seen from the previous two months’ inflation reports.
China’s economic reopening, pivoting from its zero-COVID policy, the possibility of the United States economy making a soft landing and Europe avoiding a deep recession could together make upward pressure again on global energy and commodities prices causing fresh price pressures on emerging and developing economies such as Sri Lanka. 

Central banks on both sides of the Atlantic—the United States Fed, the Bank of England, European Central Bank and the Swiss National Bank hiked their interest rates by 50 basis points last week, signalling a slowdown in the pace of rate hiking after some soft inflation readings in recent months. 

However, they penciled in more rate hikes with higher terminal rates until they see credible evidence of their decades high inflation returning to their 2 percent target which is not something that is expected to be achieved in 2023.
The rate moves by these leading central banks have a direct impact on the rest of the economies in terms of their exchange rates, demand for goods they make and investment and debt flows from developing markets.