Industrial Production Index |
The industrial production index is another important statistical indicator that affects the exchange rate of the national currency. True, in terms of significance, it is unlikely to be compared with statistics on inflation, unemployment or GDP, but it should not be written off. At the very least, these are statistics that should be taken into account when analyzing the macroeconomic situation. What it is, how it is calculated and what impact it has on the stock and foreign exchange markets, read the review.
How to make money on the industrial production index
This indicator is also called the production volume index. It represents the ratio of the price of goods and services created in the reporting period to the same indicator of the base period. It includes:
- electricity and gas industry;
- processing of raw materials;
- water supply, disposal.
For the most part, this index is used in business planning of production volumes. It is used to build targets for the production of enterprises and forecast future cash flows. But it can also influence the value of individual securities. The methodology for calculating the industrial production index differs from country to country. The most common model is the Laspeyres index.
The index is calculated in several stages:
- Calculation of the increase in production volumes for the reporting period (usually for a month or from the beginning of the year) in relation to the average monthly value of the base period. The base period is considered to be a period in which no significant wave fluctuations in values were observed, subsequent and previous years were relatively stable. For example, if the period of 2011 is considered the base, then the comparison is taken from January-June of the current year to January-June 2011.
- Calculation of changes in production volumes in the previous month with the corresponding month of the base year. For example, May of the current year to May 2011.
- Calculation of changes in production volumes for the current period relative to the previous one. For example, June of the current year to May of the current year.
An aggregated value is displayed for three indicators. The index is published by month, quarter and year. It is also calculated in the context of each industry, which at the time of a crisis or peak growth makes it possible to track the most problematic and promising industries. The industrial production index is estimated together with inflation and unemployment rates.
The growth of the index indicates the growth of balanced production (that is, production taking into account the level of consumption). And this is a reason for hope that the company’s revenue will also grow. To a large extent, the rise or fall of stock quotes depends on whether the index data coincide with the forecast (consensus).
Output… The industrial production index is rather auxiliary. His analysis gives a rough idea of how the economy is developing. But the release of statistics, for example, on the US market does not carry such a key significance as the discount rate or Non-Pharm. However, it is useful for fundamental analysis.