Producer Price Index (PPI)

What the PPI is

The Producer Price Index (PPI) measures average changes over time in the selling prices that domestic producers receive for their goods and services. Compiled and published monthly by the U.S. Bureau of Labor Statistics (BLS), the PPI reflects price movement at the wholesale or producer level — typically at the first commercial transaction for a product or service.

How the PPI works

• Data collection: The PPI is derived from thousands of price indexes built from monthly price quotes reported by a large, nationwide sample of producer establishments.
• Coverage: It spans the full range of U.S. goods output and a substantial portion of services, with component indexes weighted by the value of category output.
• Publication cadence: The BLS releases PPI data (with and without seasonal adjustment) each month, together with detailed industry and product indexes.

Main uses

• Monitor wholesale inflation and industry price trends.
• Serve as a leading indicator of consumer inflation — changes in producer prices often precede changes in consumer prices.
• Provide indexes used in escalator clauses and price-adjustment provisions in contracts tied to input costs.

PPI vs. CPI

• Perspective: PPI measures price changes from the producer’s viewpoint; the Consumer Price Index (CPI) measures prices faced by consumers at the point of purchase.
• Composition differences:
• PPI generally excludes imported goods’ prices but includes export prices; CPI includes import prices.
• CPI includes categories like shelter (including owners’ equivalent rent) that PPI does not.
• Timing: Because PPI captures earlier stages of the production chain, it can signal inflationary pressures before they appear in the CPI.

How PPI numbers are organized

The BLS publishes thousands of indexes each month and groups them in three main classifications:
– Industry-level classification: Indexes for producer prices received by more than 500 industry categories (based on output sold outside the industry).
– Commodity classification: Product- and service-based groupings that ignore the producer’s industry (thousands of commodity indexes).
– Final demand–Intermediate demand (FD‑ID): Indexes organized by the buyer’s economic role and the processing stage of goods; final demand measures are used to compute the headline PPI.

Indexes are available with and without seasonal adjustment and at varying levels of aggregation to support analysis by industry, product, and stage of production.

What the PPI does and doesn’t include

• Included: Selling prices received by domestic producers at the first commercial transaction for many goods and some services; export prices.
• Excluded or treated differently: Import prices are generally not included; consumer-focused categories such as imputed housing costs are not part of the PPI.

Limitations and considerations

• Short-term divergence: Wholesale and retail inflation can diverge in the short term due to distribution costs, taxes, subsidies, and retail markups.
• Not a direct measure of consumer experience: Because it measures earlier stages of the supply chain, changes in the PPI do not translate one‑for‑one into consumer price changes.

Bottom line

The PPI is a comprehensive, monthly measure of wholesale price movement that helps policymakers, businesses, and analysts track inflationary pressures, compare industry trends, and anticipate changes that may later affect consumer prices.

Source

U.S. Bureau of Labor Statistics (Producer Price Index program)