Producer Price Index
The Producer Price Index (PPI) measures average changes in prices received by domestic producers for their output. The PPI was known as the Wholesale Price Index, or WPI, up to 1978.
Most of the data is collected through a systematic sampling of producers in manufacturing, mining, and service industries, and is published monthly by the Bureau of Labor Statistics. Virtually every type of mining and manufacturing industry is currently sampled in the PPI; and a majority of service industries are sampled, with more being constantly added.
Movements of price indexes from one month to another usually should be expressed as percent changes, rather than as changes in index points, because the latter are affected by the level of the index in relation to its base period, while the former are not. Each index measures price changes from a reference period defined to equal 100.0. The current standard base period for most commodity-oriented PPI series is 1982, but many indexes that began after 1982 are based on the month of their introduction.
An increase of 20 percent from the base period in the Finished Goods Price Index, for example, is shown as 120.0, which can be expressed in dollars as follows: “Prices received by domestic producers of a systematic sample of finished goods have risen from $100 in 1982 to $120 today.” Likewise, a current index of 133.3 would indicate that prices received by producers of finished goods today are one-third higher than what they were in 1982.
This differs from the CPI in that price subsidation, profits, and taxes may cause the amount received by the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any resulting increase in the CPI. Producer price inflation measures the pressure being put on producers by the costs of their raw materials. This could be “passed on” as consumer inflation, or it could be absorbed by profits, or offset by increasing productivity.
It’s a measure of the inflation .