Economic Indicators - ZEW, PPI And Central Banks' Minutes Explained By FXMAG.COM
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The market is full of reports on various macroeconomic indicators and we can hear from experts how they affect the economic situation. But how exactly are they calculated and what do they represent? This article will help you understand ZEW Indicator of Economic Sentiment and Producer Price Index (PPI) better. In addition, we will find out what central bank's minutes are and why they are important to the markets.
Central bank’s minutes
Decisions on monetary policy are taken by central banks. Recently, the decision on interest rates has been largely heard. Such decisions are made at meetings of bank members. The market, if you want to know the details, can use the central bank minutes.
By definition, this is summarise the bank's current outlook on the economy and explain the reasoning behind its chosen actions.
In the publication, we get acquainted with the course of the meeting. Consequently, with the topics discussed, the discussion and the decisions that were made. The decisions made there affect borrowing, spending, and savings rates. One of the practical advantages is that the publication of minutes helped markets to predict the monetary policy decisions of the bank.
ZEW Indicator of Economic Sentiment
On Tuesday, we were able to see the current data on the ZEW economic sentiment in Germany and in Europe. ZEW stands for Zentrum für Europäische Wirtschaftsforschung, which translates to the Center for European Economic Research. The indicator focuses on exploring the future of Germany.
Economic sentiment indicators are a popular way to measure and forecast trends in an economy. This indicator examines the sentiment of 350 economists and analysts. These experts come from the banks, insurance companies and financial departments of selected corporations. They are asked about their expectations for the coming six months regarding the economy in general, inflation rates, interest rates, stock markets, exchange rates and oil prices.
How to calculate it?
It is the difference between the percentage share of analysts that are optimistic and the share of analysts that are pessimistic for the German economy in six months. For example: If 45% of participants expect the economic situation in Germany to improve in the next six months, 20%expect no change, and 35% expect the economic situation to worsen, the index will be 10. A positive number means that the share of optimists outweighs involving pessimists and vice versa. The ZEW Indicator of Economic Sentiment is calculated from the results of the ZEW Financial Market Survey.
These two reports were discussed in a practical example in the my previous article: The Economic Outlook In Euroland And Germany Is Getting Worse| FXMAG.COM
What is Producer Price Index (PPI)?
The PPI is somewhat similar to the CPI except that it looks at price increases from the producer's rather than the consumer perspective. The PPI determines the change in output prices faced by producers. Sometimes it is omitted when assessing the pace of price changes.
As stated in the definition and practice the index can be measured on raw (iron ore, aluminum scrap, soybeans and wheat), intermediate (leather, paper and basic chemicals) and finished products. When calculating the base PPI, variable items such as energy and food prices are excluded from the base calculation.
Calculating the PPI is done in the same way as the CPI, but from the producer's basket side i.e. Current price of basket/Base price of basket.
Tracking the PPI is just as important as the CPI because it allows you to identify the cause of changes in the CPI. For example, if the CPI is rising much faster than the PPI, this may indicate that factors other than inflation may be causing retailers to increase prices.
Read more about US PPI: Great Britain’s CPI Lower Than The Expected, Eyes On US PPI| FXMAG.COM
Source: zew.de,investopedia.com
