First, let's take a look at what these two acronyms mean: the PPI is the producer price index and the CPI is the consumer price index. Both indexes calculate the change in price of a set of goods and services, however there are two fundamental differences between the producer price index and the consumer price index.

The first difference between the indexes is the targeted goods and services. The producer price index focuses on the whole output of producers in the United States. This index is very broad, including not only the goods and services purchased by producers as inputs in their own operations or as investment, but also includes goods and services bought by consumers from retail sellers and directly from the producer. In contrast, the consumer price index targets goods and services that are bought for consumption by urban U.S. residents. The CPI includes imports; the PPI does not.

The second fundamental difference between the indexes includes the prices. In the producer price index, sales and taxes are not included for the producer's returns because these factors do not directly benefit the producer. Conversely, the consumer price index includes taxes and sales because these factors do directly impact the consumer by having to pay more for the goods and services.

These differences exist because the indexes are intended to show different aspects of economic activity. The producer price index is often used to calculate real growth by adjusting inflated revenue sources, and the consumer price index is often applied to calculate changes in the cost of living by adjusting revenue and expense sources.

For more on this, read Economic Indicators: Producer Price Index (PPI) and Inflation: How Is It Measured?

This question was answered by Bob Schneider.

  1. What is the difference between the consumer price index (CPI) and the producer price ...

    Learn how the PPI and CPI differ in the composition of their target sets of goods and services and the types of prices collected ... Read Answer >>
  2. Is the consumer price index (CPI) the best measure of inflation?

    Discover how the CPI is one of the most used indexes to measure inflation, but due to its limitations, the PPI and GDP deflator ... Read Answer >>
  3. What are some limitations of the consumer price index (CPI)?

    Explore some of the basic limitations of the widely used economic indicator, the consumer price index, or CPI, and examine ... Read Answer >>
  4. Is it possible to invest in an index?

    First, let's review the definition of an index. An index is essentially an imaginary portfolio of securities representing ... Read Answer >>
  5. How does inflation affect fixed-income investments?

    Learn about the ways inflation can harm fixed-income investments. Find out how to monitor the impact of inflation using common ... Read Answer >>
  6. Is the consumer price index (CPI) a cost of living index?

    Explore the consumer price index (CPI) and understand why it is not an actual cost of living index although it is often identified ... Read Answer >>
Related Articles
  1. Trading

    Predict Inflation With The Producer Price Index

    Find out how the PPI can be used to gauge the overall health of the economy.
  2. Insights

    Understanding the Producer Price Index (PPI)

    The Producer Price Index, or PPI, measures the average change in the prices that domestic producers receive for the output they sell.
  3. Investing

    What is an Index?

    An index is a statistical means of calculating a change in an economy or market.
  4. Investing

    The Pros and Cons of Indexes

    Learn about the advantages and disadvantages of stock indexes and passive index funds. Discover how there is an opportunity cost to using index funds.
  5. Investing

    Deadly Flaws In Major Market Indicators

    These indicators give investors and experts some data to work with, but they're far from perfect measures.
  6. Trading

    Using Index Futures To Predict The Future

    Want to know whether the stock market will open up or down? Check out the index futures.
  7. Investing

    ETF Tracking Errors: Protect Your Returns

    Tracking errors tend to be small, but they can still adversely affect your returns. Learn how to protect against them.
  8. Insights

    Consumer Confidence Index

    The Consumer Confidence Index is the result of a monthly survey of 5,000 U.S. households by the Conference Board that measures how optimistic or pessimistic consumers are about the economy's ...
  9. Insights

    What Does Price Level Mean?

    Price level is the average of all current prices for goods and services in an economy.
  10. Insights

    Capacity Utilization: A Strike Against Rate Hikes

    Despite a recent jump in certain prices indices, capacity underutilization suggests inflation is not a threat, and a more dovish Fed should be welcomed.
  1. Producer Price Index - PPI

    A family of indexes that measures the average change in selling ...
  2. Import And Export Prices

    Two indexes that monitor the prices of imports and exports in ...
  3. Indexation

    Linking adjustments made to the value of a good, service or other ...
  4. Total Return Index

    A type of equity index that tracks both the capital gains of ...
  5. Producer Surplus

    An economic measure of the difference between the amount that ...
  6. Index Investing

    A form of passive investing that aims to generate the same rate ...
Hot Definitions
  1. Federal Debt

    The total amount of money that the United States federal government owes to creditors. The government's creditors include ...
  2. Passive Management

    A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. ...
  3. Series 7

    A general securities registered representative license administered by the Financial Industry Regulatory Authority (FINRA) ...
  4. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  5. Expatriation Tax

    An expatriation tax is a tax on someone who renounces their citizenship. In the United States, the expatriation tax provisions ...
  6. Earnings Stripping

    Earnings Stripping is a commonly-used tactic by multinationals to escape high domestic taxation by using interest deductions ...
Trading Center