Australian PPI rises 1.8% in Q3, dwarfs expectations

The news: Final demand in Australia's producer prices index (PPI) rose 1.8% in the third quarter, smashing expectations of 0.7%, with higher prices across most industries. Inflation in construction outputs, petrol and energy prices were compounded by price increases in services like health and childcare, the ABS said.

The numbers: The latest result was a significant uptick from the June quarter's reading of 0.5%. On an annual basis, final demand rose 3.8%, down slightly from 3.9% in the year to the June quarter. The index itself rose from 124.7 in the June quarter to 127 index points in the latest quarter. Building and construction output costs contributed most to the figures, increasing 1.3% in the September quarter due to ongoing labour shortages inflated materials costs. Petroleum refining and fuel manufacturing lifted 10.7% on the back of rising crude oil prices and a declining Aussie dollar, while electricity, gas, and water supply, sewerage and drainage services rose 5.9% on the back of annual reviews and wholesale costs.

The context: PPI measures price inflation from the perspective of industries that produce goods and services, rather than the consumer's perspective (CPI). Because PPI measures price changes prior to value adding, they can be a good indicator of future price growth in the broader economy.