What is the 'Producer Price Index - PPI'
The Producer Price index (PPI) is a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller and differs from other indexes, such as the Consumer Price Index, that measure price change from the purchaser's perspective. The PPI looks at three areas of production: industry-based, commodity-based and commodity-based final demand-intermediate demand.
BREAKING DOWN 'Producer Price Index - PPI'
There are roughly 10,000 PPI measures released each month for individual products and groups of products. These PPIs track the output of nearly all goods-producing industries in the United States, which include industries like mining, manufacturing, agriculture, natural gas, construction, and others within producing sectors.
The PPI is interpreted similar to most indexes. Each individual product or group of products starts with a base number of 100 in a base period. All future movements in producer price is then measured against the prior period. So, if a product has a base PPI of 100 and then in the following month it has a PPI of 110, it's indicating that the price of that product has increased by 10% in relation to the previous period. Current PPIs have the base year set at 100 in 1982.
Industry-Based Classification PPI
The PPI's industry classification measures at the industry level and tracks the changes in prices received for an industry's output outside the industry itself. This means that the PPI, on the industry level, measures the net output of an industry. The PPI publishes over 535 industry price indexes as well as over 4,000 product-related indexes and roughly 600 indexes that group industries together.
Commodity-Based Classification PPI
The PPI's commodity classification organizes products and services by similarity and production composition and completely ignores the industry classification of the product being classified. There are more than 3,700 commodity price indexes published for goods and roughly 800 commodity price indexes published for services. These classifications are organized by product, service and end use.
Commodity-Based Final Demand-Intermediate Demand Classification PPI
The commodity-based final demand-intermediate demand (FD-ID) system is a new addition to the PPI and it takes the place of the older stage-of-processing (SOP) system. The FD-ID system regroups commodity indexes for goods, services and construction into subproduct classes, which take into account the specific buyer of the products and the amount of physical processing or assembly that the products have already undergone.
The PPI publishes more than 600 FD-ID indexes that measure the price change for goods, services and construction provided to intermediate demand and final demand end-users. Some are adjusted for seasonality, while some are not.