Producer Price Index (PPI)

Definition

The term producer price index refers to a series of benchmarks that measure the change in selling prices for domestic products and services. Approximately 10,000 producer price indexes are published on a monthly basis.

Explanation

A price index is a benchmark measure that allows analysts to understand how the price of goods and / or services varies over time or between geographies. Broad based indices allow economists to understand how well an economy is performing and the impact of prices on the cost of living.

Also known as the PPI, the producer price index (PPI) measures the change in the selling price for goods and services. The 10,000 producer price indices released by the Bureau of Labor Statistics attempt to represent the entire set of goods and services produced in the United States. This includes goods and services purchased by other producers as well as those purchased by consumers and government agencies.

The PPI is a much broader measure than the consumer price index, which limits its data to goods and services purchased for consumption by urban households in the United States. The producer price index also measures the change in price from the perspective of the seller, while the consumer price index measures the change in price from the perspective of the buyer.

The PPI covers 72% of the service sector's output, and individual metrics are available for nearly all industries found in the United States. A modified Laspeyres index, which compares the base revenue for a product to the current revenue for a product, is used to calculate each index. Approximately 25,000 participants report over 100,000 price data points each month to the Bureau of Labor Statistics. All indexes are published monthly.

Related Terms

price indexInternational Comparison Programimport and export price indexGDP deflatoremployment cost index, consumer price index