Producer Price Index (PPI) - Investopedia

The producer price index (PPI) is a family of indexes that gauges the ... This data contains almost all industries that produce goods in the United States. Economics Macroeconomics Macroeconomics GuidetoEconomicDepression GuidetoEconomicRecession WhatIstheProducerPriceIndex(PPI)? Theproducerpriceindex(PPI),publishedbytheBureauofLaborStatistics(BLS),isagroupofindexesthatcalculatesandrepresentstheaveragemovementinsellingpricesfromdomesticproductionovertime. Itisameasureofinflationbasedoninputcoststoproducers. KeyTakeaways ThePPIisdifferentfromtheCPIinthatitmeasurescostsfromtheviewpointofindustriesthatmaketheproducts,whereastheCPImeasurespricesfromtheperspectiveofconsumers.TheBLSseparatesPPIdataintothreemainareasofclassification:industry,commodity,andcommodity-basedfinalandintermediatedemand(FD-ID).ThePPIisconsideredanobjectivetoolforadjustingpricesinlong-termpurchasingagreements. 1:22 ProducerPriceIndex(PPI) UnderstandingtheProducerPriceIndex(PPI) ThePPI measures pricemovementsfromtheseller'spointofview.Conversely,theconsumerpriceindex (CPI)measurescostchangesfromtheviewpointoftheconsumer.Inotherwords,thisindextrackschangestothecostofproduction.TherearethreeareasofPPIclassificationthatusethesamepoolofdatafromtheBureauofLaborStatistics:industry,commodity,andcommodity-basedfinalandintermediatedemand(FD-ID). TheBureauofLaborStatistics(BLS)releasesmonthlyinformationthatincludesthemeasurementofnearly10,000individualproductsandproductgroups.ThisdatacontainsalmostallindustriesthatproducegoodsintheUnitedStates.Someofthesectorscoveredincludeconstruction,agriculture,manufacturing,andmining. Until1978,thePPIwasknownasthewholesalepriceindex(WPI).In1982,theBLSresetallproducerpriceindexbasesto100,andthiseventbecamethebaseyear. Eachspecificmeasurementperiod,productgroup,orindividualproducttype,beginswithabaseperiodnumberof100.Asproductionincreasesordecreases,themovementscanthenbecomparedagainstthebasenumber.Asanexample,saytheproductionofballoonshasaPPIof115forthemonthofJuly.The115figureindicatesthatitcosttheballoonmanufacturingindustry15%moretoproduceballoonsinJulythanitdidinJune. ExampleofProducerPriceIndex(PPI) Businessesoftenenterintolong-termcontractswithsuppliers.Becausepricesfluctuateovertime,suchlong-termdealswouldbedifficultwithonlyasingle,fixedpriceforthegoodsorsupplies.Instead,thepurchasingbusinessandthesuppliertypicallyincludeaclauseinthecontractthatadjuststhecostbyexternalindicators,suchasthePPI. Forexample,CompanyAmightgetakeycomponentforitswidgetsfromIndustryZ.Attheoutsetofthedeal,thecostofthatcomponentis$1,butitincludesaprovisioninthecontractthatthepricewillbeadjustedquarterly,accordingtothePPI.So,threemonthsafterthecontractissigned,thecostofthecomponentcouldbe$1.02eachifthePPIincreasedby2%duringthequarter,or$0.99eachifthePPIdecreasedby1%duringthequarter.Therefore,withthecontractPPIindexed,thepriceofwidgetswillgoupordowndependingonwhetherornotthePPIwentupordownandhowmuchitchanged. BureauofLaborStatisticsReleasedData BLSproducesthousandsofproductpriceindexeseachmonth.Ananalystcanreviewinformationbrokenintothreelargecategoriesandthenfurtherdrilldowntospecificproductsorservices. IndustryLevelClassification OneoftheclassificationsforBLSdataistheindustry-basedcategory.Theindustry-basedgroupmeasuresthecostofproductionattheindustrylevel.Ittracksthechangesinpricesreceivedforanindustry'soutputoutsidethesectoritselfbycalculatingindustrynetoutput.BLSproductpriceindexincludesapproximately500industry-specificlistings.Publicationsincludeover4,000product-relatedindexes.Further,theagencyoffersaround500indexesforgroupedindustryinformation. CommodityClassification Thesecondcategoryisthecommodityclassification.Thispublicationignorestheindustryofproductionandcombinesgoodsandservicesbysimilarityandproductmake-up.Morethan3,800indexescoverproducedgoodsandabout900coverservices.Theindexesarearrangedbyend-use,product,andservice. Commodity-BasedFinalDemand-IntermediateDemand(FD-ID) TheFD-IDsystemregroupscommodityindexesforgoods,services,andconstructionintosub-productclasses,whichtakeintoaccountthespecificbuyeroftheproducts.Theend-userorbuyeristermedaseitherthefinaldemand(FD)ortheintermediatedemand(ID)user.Thisclassificationconsidersthephysicalassemblyandprocessingrequiredforthesegoods.Here,BLSpublishesover600FD-IDtargetedindexes.Someindexesareadjustedforseasonality. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. U.S.BureauofLaborStatistics."ProducerPriceIndexFrequentlyAskedQuestions:WhatTypesofIndexesArePublished?"AccessedAug.25,2021. U.S.BureauofLaborStatistics."ProducerPriceIndexFrequentlyAskedQuestions:WhatIstheProducerPriceIndex?"AccessedAug.25,2021. U.S.BureauofLaborStatistics."ProducerPriceIndexFrequentlyAskedQuestions:HowIsanIndexInterpreted?"AccessedAug.25,2021. U.S.BureauofLaborStatistics."ProducerPriceIndexFrequentlyAskedQuestions:WhenDidtheWholesalePriceIndexBecometheProducerPriceIndex?"AccessedAug.25,2021. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms ImportandExportPriceIndexes(MXP)Definition Theimportandexportpriceindexes(MXP)measurethepricesofnon-militarygoodsandservicescominginandoutoftheU.S. more WhatIsInflation? Inflationisadecreaseinthepurchasingpowerofmoney,reflectedinageneralincreaseinthepricesofgoodsandservicesinaneconomy. more ConsumerPriceIndex(CPI) TheConsumerPriceIndex(CPI)measurestheaveragechangeinpricesovertimethatconsumerspayforabasketofgoodsandservices. more WhattheWholesalePriceIndex(WPI)Measures Awholesalepriceindex(WPI)measuresandtracksthechangesinpricesofgoodsinthestagesbeforetheretaillevel.Usuallyexpressedasaratioorpercentage,aWPIisoftenseenasoneindicatorofacountry'slevelofinflation. more WhatDoesFarmPriceIndex(FPI)Mean? TheFarmPriceIndexisaneconomicindicatormeasuringthepricesreceivedbyfarmersforthesaleofcropsandlivestock. more CapitalGoodsPriceIndex(CGPI) CapitalGoodsPriceIndex(CGPI)isanofficialstatisticalmonitorofchangesinfixedcapitalassetpricesinNewZealand. more PartnerLinks RelatedArticles Macroeconomics ConsumerPriceIndexvs.ProducerPriceIndex:What’stheDifference? Macroeconomics PredictInflationWiththeProducerPriceIndex(PPI) Macroeconomics IstheConsumerPriceIndex(CPI)thebestmeasureofinflation? Macroeconomics AnExplanationofStagflation Economics WhatYouShouldKnowAboutInflation InvestingEssentials DeadlyFlawsinMajorMarketIndicators