In September, industrial producer prices in the eurozone rose by 2.5% month-on-month, and in the European Union by 2.6%. This increase is quite significant, but when energy costs are excluded, prices in the eurozone only rose by 0.1%. Therefore, the initial estimates from Eurostat convey a clear contradiction: while factory prices are rising rapidly, this increase is almost entirely driven by energy costs alone.
Year-on-year data highlights this contrast even more. Industrial producers' prices in the eurozone were 11.1% higher than in the same period of the previous year, with energy prices rising by 30.8% year-on-year; excluding energy, the year-on-year increase was 3.5%. The Producer Price Index (PPI) measures the prices that domestic industrial producers receive at the factory gate, not the retail prices ultimately paid by consumers. It can indicate costs and pricing pressures for businesses, but it cannot be mechanically translated into consumer inflation for a future month.
The price at the factory entrance: first, answer where the cost comes from.
In September, energy prices rose by 7.8% month-on-month, while the price of intermediate goods increased by 0.4%. The monthly changes in capital goods, durable consumer goods, and non-durable consumer goods were all much smaller than those of energy. This combination indicates that the current impact is first felt by enterprises that need to purchase electricity, fuel, or energy-intensive inputs. Enterprises then have several different options: raising prices, cutting profits, reducing production, or adjusting their procurement and inventory. The index only records the prices received by producers and does not make choices on behalf of enterprises.
The transmission capabilities of different industries also vary. Enterprises with long-term contracts may be able to lock in energy costs temporarily; manufacturers in highly competitive markets may find it difficult to pass on price increases entirely to their customers; retail chains with sufficient inventory can also delay the impact of these increases. For this reason, an increase in PPI is evidence of cost pressures, but it does not necessarily mean that CPI will rise in proportion. Drawing a straight line between the two would overlook several layers of buffers such as profits, contracts, taxes, and channel inventory.
The difference between the EU and the eurozone on a month-on-month basis is only 0.1 percentage points, but the results among member states vary widely. Different energy structures and industrial weights can lead to varying degrees of impact from the same round of price shocks. For economies that are more dependent on energy imports and have a larger proportion of heavy industry, PPI is more easily amplified by energy price changes; in regions with a higher proportion of services or different energy contract arrangements, the representativeness of industrial prices for the overall economy is more limited.
0.1% reveals the part that has not yet spread.
Excluding energy, the month-on-month increase was only 0.1%, which is the most informative figure in this set of data. It indicates that industrial prices other than energy did not experience a similar scale of simultaneous surge in September. Although intermediate goods saw increases, capital goods and consumer goods did not show a comprehensive acceleration. For assessing the breadth of inflation, this is more important than just looking at the overall increase of 2.5%.
However, this does not mean that the impact of energy can be isolated. Energy is a common input in almost all industrial production, and its transmission takes time. In September, the prices at factory gates may first be reflected in wholesale contracts, then in retail pricing, or they may also be absorbed by corporate profits. What subsequent data needs to answer is whether the 3.5% year-on-year increase in non-energy costs will continue to expand, and whether changes in intermediate goods will gradually affect final products.
Eurostat refers to this set of numbers as first and estimates; these may be revised in the future. The statistics cover industrial producers and do not include the service sector, nor do they represent the total input costs of enterprises. This data is suitable for answering the question "Where have industrial prices risen from?" but is not sufficient to answer the question "By how much will residents' living costs increase?" When we put the data back into its proper context, its value becomes clearer: the energy shock has already created a sharp peak on the production side, while other industrial prices are currently only showing moderate increases.
Inventory levels can also affect the timeline. Companies that have already stocked up can continue to sell at the old cost for the time being, while those that have newly signed procurement contracts will face higher energy prices sooner; within the same industry, the months in which companies adjust their selling prices may also differ. Therefore, September PPI is more like a map indicating the starting point of cost pressures, rather than a countdown to consumer prices. By observing the following months, it is necessary to compare inventory digestion, profit margins, and the breakdown of finished product costs simultaneously.
This set of data has changed the order of priorities regarding risks. For businesses, the most urgent issues are energy procurement and cash flow. How much consumers will ultimately be affected depends on whether the transmission channels are unobstructed. The 2.5% in the overall index serves as a warning signal, while the 0.1% after excluding energy indicates from which sector the issue originates. The focus of future observations should not be on repeatedly marveling at the increase rates, but rather on whether the fire of rising prices will spread from the energy sector to a broader range of commodity prices.
