The Producer Price Index, or PPI, is a monthly report released by the Bureau of Labor and Statistics that measures the change in the selling prices, or wholesale prices, received by domestic producers for their output.
The PPI is not as widely used as the CPI, but it is still considered to be a good indicator of inflation.
This indicator reflects the change in manufacturers’ cost of inputs (such as raw materials).
Formerly known as the “Wholesale Price Index”, the PPI is a basket of various indexes covering a wide range of areas affecting domestic producers.
Each month approximately 100,000 prices are collected from 30,000 production and manufacturing firms.
It is not as strong as the CPI in detecting inflation, but because it includes goods being produced it is often a forecast of future CPI releases.
The report is released in the second week of every month and includes data on the previous month.
For example, June’s report includes data on May.
What is PPI?
The report is generated through a mail survey of several randomly-selected retailers (with proportional preference given to size.)
Where possible, actual transaction prices for the products included are used in generating the report.
The report expresses prices through a percentage index of a baseline level of production (rather than through a dollar amount), and it divides its data into three broad categories: stage-of-processing, industry-based, and commodity-based.
The report also expresses changes in the index from month to month and the index change from the previous year.
The industry and commodity-based indexes are extremely extensive, allowing a high level of specificity when looking for data on a particular asset.
Why is PPI important?
Traders mainly use the PPI as an indicator of price inflation over time. Although the similarly-functioning Consumer Price Index (CPI) is considered to be a more useful measure of present inflation, the PPI’s inclusion of goods in production makes it a potential leading indicator of future price inflation in certain industries.
One key drawback of the PPI is that it excludes all data on imported goods, making it difficult to detect the influence of one country’s market on another with respect to currency prices.