Producer Price Index (PPI) measures the change in selling prices received by domestic producers of goods and services. The PPI includes data from the following sectors: mining, manufacturing, agriculture, fishing, forestry, utilities and construction.

The PPI measures price movements from the seller’s or producers, point of view. Naturally, the consumer price index (CPI) measures prices changes from the viewpoint of the consumer. In other words, the PPI tracks changes to the cost of production (i.e. producers’ inflation). Because it measures price changes before they reach consumers, some analysts see it as an earlier predictor of inflation than the CPI.

The most closely-watched index of the PPI index family is the ‘PPI for final demand‘, which measures price changes for goods, services, and construction sold to final demand: personal consumption, capital investment, government purchases, and exports. Yet, there is also a ‘PPI for intermediate demand‘, which tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment.

January ’22 data showed that US PPI (final demand) jumped 1.0%, the biggest advance since May, after climbing 0.4% in December. At a two-decade high, it rose much faster than forecast by economists (0.5%) and may push the FOMC towards more rate hikes in March and beyond.  

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