What it Measures:
The Producer Price Index or PPI measures the prices of physical goods at the producer or wholesale level. The weighted index includes all goods manufactured and produced in the U.S. and was called the Wholesale Price Index until 1978.
- PPI Commodity Index – also called PPI crude, shows prices for raw materials such as crude oil, coal and scrap steel.
- PPI Stage of Processing Index – The SOP as it is also called shows prices for goods which are in the intermediate stage of production which will later be sold to producers to make a finished product.
- PPI Industry Index – shows prices for goods at the final stage of manufacture and is the source of the core PPI figure.
PPI uses a fixed basket of goods from 1982, which is given a value of 100, as a benchmark year for measuring increases.
What effect it has:
If the PPI number is higher than the consensus, this will have a favorable effect on the value of the U.S. Dollar because rising prices at the wholesale level tend to indicate increased demand on the consumer level, as well as a higher risk of interest rate rises.
Conversely, if the number comes out lower-than-expected, it will tend to prompt a decline in the value of the Dollar due to reduced concerns over inflationary pressures.
How often it is released:
Released monthly, typically 15 days after the end of the month reviewed.
Why it is important:
A leading indicator of inflationary trends in the economy, the PPI is a widely-watched index that is used by the Federal Reserve to gauge inflation at the wholesale level in order to adjust interest rates. As a result, it can have an important impact on the U.S. Dollar.
Furthermore, when wholesale prices increase, these costs are usually passed on to consumers. This therefore increases the likelihood of inflation taking hold in the economy which may prompt the Federal Reserve to raise interest rates.
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