PRODUCER PRICE INDEX

Definition

The Producer Price Index, or PPI, is a monthly report released by the Bureau of Labor and Statistics detailing the purchasing price of various consumer goods. The report is released in the second week of every month and includes data on the previous month (for example, June's report includes data on May.)

Importance

Traders mainly use the PPI as an indicator of price inflation over time. Although the similarly-functioning Consumer Price Index (CPI) is considered to be a more useful measure of present inflation, the PPI's inclusion of goods in production makes it a potential leading indicator of future price inflation in certain industries.

One key drawback of the PPI for foreign exchange market applications: the PPI excludes all data on imported goods, making it difficult to detect the influence of one country's market on another with respect to currency prices.

Background

The report is generated through a mail survey of several randomly-selected retailers (with proportional preference given to size.) Where possible, actual transaction prices for the products included are used in generating the report. The report expresses prices through an percentage index of a baseline level of production (rather than through a dollar amount), and it divides its data into three broad categories: stage-of-processing, industry-based, and commodity-based. The report also expresses changes in the index from month to month and the index change from the previous year. The industry and commodity-based indexes are extremely extensive, allowing a high level of specificity when looking for data on a particular asset.