Producer Price Index
The Producer Price Index (PPI) measures the average change over time in selling prices received by domestic producers for their output.
Meaning in Practice
The PPI tracks price changes at the wholesale or production level before goods reach consumers. It covers sectors such as manufacturing, mining, and utilities. The index is typically published monthly and can signal pipeline inflation pressures.
Why It Matters
The PPI provides early indications of inflation trends that may later appear in consumer prices. Policymakers and analysts use it to assess cost pressures within the economy. Persistent increases may influence monetary policy expectations.
Market Impact
Higher PPI readings can lead to expectations of rising consumer inflation and tighter monetary policy. Bond yields may increase, while equities can react negatively if margins are expected to compress. Currency markets respond to shifts in rate expectations.
Example
If producer prices rise sharply due to higher energy costs, companies may pass these costs on to consumers, contributing to future CPI increases.