US – PPI

Released by: Bureau of Labor statistics, Department of Labor (monthly)

The PPI is a basket of prices affecting US producers, made up of roughly 100,000 prices collected from 30,000 production and manufacturing firms.
The Producer Price Index (PPI), formerly known as the Wholesale Price Index, is a measure of inflation. While not as widely used as the CPI, many market participants do still pay close attention to the PPI and it is regarded as a high-quality gauge when it comes to detecting inflation.

Why is it important?

While the CPI measures prices that consumers are paying, and affects the Fed’s interest rate policy more directly, the PPI presents key data from earlier in the production process – it therefore potentially offers an opportunity to predict movement in the CPI.
If the prices paid to manufacturers are going up, businesses will be left with the choice of either charging higher prices or taking a drop in profits. The ability of businesses to pass on costs in the form of price increases is dependent on the strength of the marketplace and how competitive it is.
A decreasing or marginally increasing PPI suggests low inflation – and low interest rates – which should, in theory, mean a rallying bond and equity markets. Any PPI figure that is larger than expected has inflationary implications and is likely to adversely affect the bond and equity markets.
A drawback to PPI data is that the index does not take into account the prices of imported goods. Consequently, it is unlikely to accurately measure producer prices for businesses with international operations.

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