What It Measures
The Producer Price Index measures inflation at the wholesale/producer level, tracking prices received by producers before goods reach consumers. It covers:
- Final Demand: Goods and services sold for personal consumption, capital investment, government, and export
- Intermediate Demand: Goods and services sold to businesses for production
PPI is often considered a leading indicator for consumer inflation, as producer cost increases are eventually passed through to consumers.
Why It Matters
Leading Indicator: Rising producer prices often precede consumer price increases.Profit Margins: Shows whether businesses can pass costs to consumers or must absorb them.Supply Chain Insights: Reveals cost pressures at different stages of production.Fed Consideration: While the Fed targets consumer prices, PPI provides early warning of inflation trends.
How to Interpret
Final Demand vs Intermediate: Final demand PPI is most comparable to consumer inflation measures.PPI-CPI Spread: If PPI rises faster than CPI, businesses may be absorbing costs, squeezing margins.Core PPI: Excludes food, energy, and trade services for a cleaner signal.