Producer Price Index (PPI)

While the CPI measures what consumers pay at the end of the supply chain, the PPI measures what sellers receive much earlier in that chain — at the point of production. It covers goods like steel, wheat, and chemicals, and increasingly services sold between businesses. Because producers often pass cost increases forward to retailers and eventually to shoppers, a rising PPI is frequently read as a leading signal of future consumer inflation. Economists describe this as "pipeline pressure."

The PPI is reported as a percent change — monthly and year-over-year — and broken into stages: raw materials (sometimes called crude goods), intermediate goods (partly processed inputs), and finished goods. Suppose a steel mill's output price rises sharply one month; automakers who buy that steel may raise car prices weeks later, eventually showing up in the CPI. Watching the PPI can give a few weeks of advance notice about where consumer prices might head. You can track releases on the economic calendar.

A common confusion is conflating the PPI with import or export price indexes, which also appear in data feeds. Those measure prices at the border, not at the domestic production stage. Another subtlety: a falling PPI does not automatically mean consumer prices will fall — retailers may choose to protect their profit margins rather than pass savings on. The PPI is one input among many; core inflation and PCE remain the figures central banks weight most heavily in their decisions.