Producer Price Index

Producer Price Index Commodities

Producer Price Index. A family of indexes, prepared by the US Bureau of Labor Statistics (BLS), that measures the average change over time in the selling prices received by domestic producers of goods and services. PPI measures price change from the perspective of the seller in contrast to other measures, such as the Consumer Price Index (CPI), that measure price change from the purchaser's perspective. Sellers' and purchasers' prices may differ due to government subsidies, sales and excise taxes, and distribution costs.

BLS releases over 10,000 PPIs for individual products and groups of products each month. Producer Price Indexes are available for the products of virtually every industry in the mining and manufacturing sectors of the US economy. New PPIs are gradually being introduced for the products of industries in the transportation, utilities, trade, finance, and services sectors of the US economy.

Producer Price Index data are widely used by business and government for three major purposes:

(a) Economic indicators — PPIs capture price movements prior to the retail level. Therefore, they may foreshadow subsequent price changes for businesses and consumers. The President, Congress, and the Federal Reserve employ these data in formulating fiscal and monetary policies.

(b) Deflator of other economic series — PPIs are used to adjust other economic time series for price changes and to translate those series into inflation-free dollars. For example, constant-dollar gross domestic product data are estimated using deflators based on PPI data.

(c) Basis for contract escalation — PPI data are commonly used in escalating purchase and sales contracts. These contracts typically specify dollar amounts to be paid at some point in the future. It is often desirable to include an escalation clause that accounts for increases in input prices. For example, a long-term contract for bread may be escalated for changes in wheat prices by applying the percent change in the PPI for wheat to the contracted price for bread.

Note: In 1978 BLS changed the name of this price measure from Wholesale Price Index (WPI) to the current term. However, no change was made to the basic index methodology, and the continuity of the price index data was unaffected.

For more information, see: BLS Web Site

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Tags: Producer Price Index, Producers Price Index, Producer Price Index Commodities, Producer Price Indices, Price Index, Holdings, Performance, Composite

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