Producer Price Index (PPI)

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Definition of the Produce Price Index (PPI):

The producer price index (PPI) is an index that measures the weighted average cost of a basket of goods and services sold in the wholesale, manufacturing, and commodity markets. It is used to determine the inflation rate for suppliers.

Detailed Explanation:

Many different baskets are used to measure inflation. The consumer price index (CPI) uses a basket of goods and services commonly purchased by an urban family. It is the most common measure of inflation because it is the broadest index that impacts the most people. Another basket includes goods and services purchased by producers. The PPI is actually a family of three indexes: commodities, “stage of processing” (intermediate goods), and industry goods (wholesale market). Price changes of crude oil and iron ore are included in the commodities index. Processed foods and lumber are examples of intermediate goods that are processed for use in manufacturing a final product. Their price changes are included in the stage of processing index. Finally, manufacturers sell their goods to wholesalers and retailers for sale to the end-user. The prices paid by the wholesalers and retailers are included in the industrial goods index. 

Changes in the PPI frequently signal changes in the consumer price index. Retailers may try to pass some of their cost increases (which is measured in the PPI) through to the final buyer (which is measured in the CPI). 

The data collected by the Bureau of Labor Statistics when computing the PPI is an outstanding resource for economists, students, and business people interested in the price movements of specific commodities and goods. It can be accessed at BLS - Archived PPI Information

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