Producer Price Index

(PPI)
 Producer Price Index

 A Producer Price Index (PPI) measures

average changes in prices received by
domestic producers for their output. It is one
of several price indices.Its importance is being
undermined by the steady decline in
manufactured goods as a share of spending.
 The PPI looks at three areas of production:
1. Crude Goods - raw materials entering the market for
the first time.
2. Intermediate Goods - commodities that have
undergone transitional processing before becoming
the final product.
3. Finished Goods - goods that are ready for the
marketplace.
 The wholesale price index (WPI)—currently
used to measure changes in the average price
level at the wholesale and retail level of
transactions in India—would be replaced by
producer price index (PPI) by the next
financial year.
 WPI measures prices at the wholesale level
and includes certain taxes and costs. PPI is a
measure of what the producer gets and not
what buyer pays, which includes taxes.
 Together with the retail price indices, it gives
an idea of margins on different products and
incidence of taxes. It indicates the cost
pressures in an economy.
 The PPI tracks price change for practically the
entire output of domestic goods-producing
sectors: agriculture, forestry, fisheries, mining,
scrap, and manufacturing.
 PPI tracks the prices of crude goods,
intermediate goods, and finished goods.
 Most of the countries have switched over to
PPI from WPI. In PPI, only basic prices are
used for compilation,while taxes, trade
margins and transport costs are excluded.
PPIs, apart from measuring inflation, are used
as deflators in the compilation of GDP. PPI is
considered to be a better measure of
inflation as price changes at crude and
intermediate stages can be tracked before it
creeps into the finished goods stage.
 Why is it Important?
 PPI is the first major inflationary number that comes
out during the month.
 PPI is the indicator of overall price movement at the
producer level. PPI captures price movement prior to
the retail level. It may foreshadow subsequent price
changes for business and consumers.
 Any sign of inflation here may lead to inflationary
pressures at the retail level. If businesses pay more
for their goods, they are more likely to pass along
some of their cost to the consumer.
 Types of PPI
 Primary Producer Price Index (PPPI)
 Secondary Producer Price Index
 Consumer Producer Price Index
 Keys to Interpreting the Data
 If you find that there is inflation in the
Finished Goods Index, it may be safe to
assume that some of these inflationary cost
may ultimately be passed on to the consumer
down the road.
 Keys to Interpreting the Data
 Look at the total Finished Goods index to
help determine the behavior of consumer
prices in the long run (6-9 months).
 Look at the Core Rate to determine month to
month changes in inflation that will serve as
a guide for anticipating near-term inflation.
Thank You…..