Jayanthi Gopalakrishnan has spent more than two decades as a financial writer and managing editor, including 17 years as the editor for Technical Analysis of Stocks & Commodities magazine, as well as her current role as Director of Content at Stockcharts.com. Her areas of expertise include futures and options trading strategies, stock analysis, and personal finance.
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The U.S. Producer Price Index (PPI) is a measure of the average change in prices paid to domestic producers of goods and services. The U.S. Bureau of Labor Statistics (BLS) calculates and publishes the PPI monthly, tracking the average change in prices that domestic producers charge and manufacturers pay to make consumer goods. The index looks at outputs in industries such as mining, manufacturing, services, agriculture, fishing, forestry, and utilities.
The PPI is often referred to in the financial press as a measure of âwholesale prices,â because it tracks price changes earlier in the production pipelineâbefore goods reach consumers. Although not technically a wholesale index, the PPI can offer an early signal of inflationary pressures that may later show up in the Consumer Price Index (CPI).
Interpreting PPI
The PPI tracks the cost of production, whereas the CPI tracks the cost of consumption. An increase in the PPI indicates that manufacturers generally pay more to produce consumer goods, which often forces them to decide whether to absorb the costs themselves or transfer them to retailers (who may then pass the increases along to consumers).
Labor shortages and supply chain issues are among the factors that can cause the PPI to increase. A high PPI may indicate that consumer prices will rise in the future, which is useful information for investors trying to predict inflation. A decrease in the PPI can signal that inflation is slowing down, which may benefit consumers in the form of lower prices, but could also pressure the profit margins of companies in the industrials sector.
