The Producer Price Index (or the Purchasing Price
Index) is the measure of the change in price of a certain set of
goods and services, on the producer's level. It displays the price
movements on a wholesale, manufacturing and commodities level - and
thus must not be confused with the Consumer Price Index (or the
CPI).
The PPI draws from three types of index figures
like:
- PPI Commodity Index - the change in the price for commodities
like crude oil, coal, steel scrap and energy.
- PPI Stage of Processing Index - the change in the price for
products that have been manufactured but need to be endorsed to
other industries for the finished goods like lumber, cotton, steel
and others.
- PPI Industry Index - the change in the price of final goods, or
goods that have undergone finished manufacture.
The Producer Price Index (or the Purchasing Price
Index) is significant to a country's economy because it can
accurately determine the CPI - as the price changes experienced by
producers tend to be felt by consumers, as well. Also, the
government relies heavily on the PPI as it has the ability to
predict inflation rates, and thus has the ability to help the
government develop fiscal programs that may revert a possible
inflation. This foresight can help a country move its markets
accordingly, and help investors perceive sales and trends in the
future.
The Producer Price Index (or the Purchasing Price
Index) only covers goods and services that have been paid for in
the survey month. It does not include contracts that set goods and
services that are still to be paid in the future. Like the CPI
though, it bases its figures on the difference in prices between
the current year and the base year - and is released in
percentages, not in nominal numbers.