How important is Producer Price Index (PPI)?

By Advisorymandi
16-June-2018 5:33:28 AM
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How important is Producer Price Index (PPI)?

“Producer Price Index (PPI)” is one of the major economic indicators which is a weighted index to measure the price changes from the perspective of the producer. If you don’t know but the Producer Price Index (PPI) was once known as Wholesale Price Index (WPI). PPI examines three areas of production: commodity-based (commodities markets), industry-based (manufacturing industries), and commodity-based final demand-intermediate demand.

In India, the WPI was first published in 1902 which then replaced by the PPI in the year 1978. It is most widely used economic indicator (or method) to measure inflation in the economy. The data on PPI launch on a weekly basis which anybody can access through the economic calendar.

In the United States, the Producer Price Index tracks the count of nearly all goods-purchasing industries like mining, agriculture, construction, natural gas, and manufacturing etc.

 

Why is it Important?

 

PPI can be interpreted in the similar ways as other indexes and can serve as a leading indicator to measure the price changes and inflation. By measuring the trend in the PPI, one can be aware of overheating the economy, high-interest rates, consumer spending, corporate profits, and most importantly, the movement in the stock market.

Not only this, but the PPI figure can help out various analysts and business executives to get the information about the trends in prices at the production process. Also, with the data on PPI, many analysts can get clues on future inflation.

 

How is it Different from WPI & CPI?

 

Producer Price Index measures price changes from the perspective of the producer, however, the Consumer Price Index measures price changes from the perspective of the purchaser.

It is a preferable mode of measuring inflation over CPI because of hidden prices at consumer level like trade margins, sales and excise duties, and distribution cost which available while calculating CPI.

Similarly, the PPI is different from the WPI. It is because PPI measures price changes from the perspective of the producer, whereas WPI measures price changes from the perspective of the wholesale market.

Another major difference between PPI and WPI is, PPI measures the price changes only on the domestic products however WPI measure the price changes on domestic as well as imported products.

 

Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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3 Comments on "How important is Producer Price Index (PPI)?"

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Amit Saini
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Amit Saini
5 months 23 days ago

You are right to mention that PPI is a reliable economic indicator when it comes of measuring inflation. It is because CPI isn’t suitable for measuring inflation especially when the hidden prices are available at consumers’ side.

Rajat Dhyani
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Rajat Dhyani
5 months 23 days ago

Do producer price index help in predicting consumer inflation?

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