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{{short description|Price index}}
{{short description|Price index}}

[[File:Producer Price Index data chart.webp|thumb|350px|Producer Price Index
[[File:Producer Price Index data chart.webp|thumb|350px|Producer Price Index
{{legend-line|#B51700 solid 4px|PPI final demand}}
{{legend-line|#B51700 solid 4px|PPI final demand}}
{{legend-line|#007FFF solid 4px|Core PPI}}
{{legend-line|#007FFF solid 4px|Core PPI}}
]]
]]
[[File:Producer Price Index Relative Importance.webp|thumb|350px|[[U.S. Producer Price Index]] Relative Importance for commodites<ref>{{cite web | url=https://www.bls.gov/ppi/tables/ | title=PPI Tables : U.S. Bureau of Labor Statistics }}</ref>
[[File:Producer Price Index Relative Importance.webp|thumb|350px|[[U.S. Producer Price Index]] Relative Importance for commodities <ref>{{cite web | url=https://www.bls.gov/ppi/tables/ | title=PPI Tables : U.S. Bureau of Labor Statistics }}</ref>
{{legend|#00A2FF|[[Fuel]]s}}
{{legend|#00A2FF|[[Fuel]]s}}
{{legend|#929292|[[Metal]]s}}
{{legend|#929292|[[Metal]]s}}
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{{legend|#FF95CA|[[Rubber]] / [[plastic]]}}
{{legend|#FF95CA|[[Rubber]] / [[plastic]]}}
{{legend|#000000|[[Miscellaneous]]}}
{{legend|#000000|[[Miscellaneous]]}}
{{legend|#004D80|[[Nonmetal (chemistry)|Nonmetallic mineral ]]}}
{{legend|#004D80|[[Nonmetal (chemistry)|Nonmetallic]] [[mineral]]}}
{{legend|#73FDEA|[[Lumber]] / [[wood]]}}
{{legend|#73FDEA|[[Lumber]] / [[wood]]}}
{{legend|#F27200|[[Furniture]] / [[household goods]]}}
{{legend|#F27200|[[Furniture]] / [[household goods]]}}
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{{legend|#82AB6D|[[Hide (skin)|Hides]], skin, [[leather]]s}}
{{legend|#82AB6D|[[Hide (skin)|Hides]], skin, [[leather]]s}}
]]
]]
A '''producer price index''' ('''PPI''') is a [[price index]] that measures the average changes in prices received by domestic producers for their output. {{clarify|date=April 2022}}
A '''producer price index''' ('''PPI''') is a [[price index]] that measures the average changes in prices received by domestic producers for their output. Formerly known as the [[wholesale price index]] between 1902 and 1978, the index is made up of over 16,000 establishments providing approximately 64,000 price quotations that the [[U.S. Bureau of Labor Statistics]] (BLS) compiles each month to represent thousands of different goods and services.<ref>{{Cite web |title=Producer Price Index Home: U.S. Bureau of Labor Statistics |url=https://www.bls.gov/ppi/ |access-date=2023-07-24 |website=www.bls.gov |language=en-us}}</ref>


Its importance{{clarify|date=November 2016}} is being undermined by the steady decline in manufactured goods as a share of spending.<ref>The Economist, Volume 387, May 31 – June 6, 2009, page 109</ref>
Its importance is being reduced by the steady decline in manufactured goods as a share of spending.<ref>''The Economist'', Volume 387, May 31{{snd}}June 6, 2009, p. 109</ref> When manufacturers face increased production costs (input costs), businesses must reconsider their pricing approach by either:

# Absorbing higher manufacturing costs, which may maintain customer satisfaction but can impact the company's profitability.
# Transferring those costs to consumers, which may boost business profits, but means customers will face higher prices for the goods and services.<ref>{{Cite web |title=Britannica Money |url=https://www.britannica.com/money/measure-inflation-cpi-ppi-pce |access-date=2023-07-24 |website=www.britannica.com |language=en}}</ref>

== Coverage ==
The PPI system encompasses the production of all industries in the sectors involved in manufacturing goods:<ref>{{Cite web |last=Salvucci |first=Jeremy |date=2023-06-15 |title=What Is the Producer Price Index (PPI) & Why Is It Important? |url=https://www.thestreet.com/dictionary/p/producer-price-index |access-date=2023-07-24 |website=TheStreet |language=en-us}}</ref>

* Mining
* Manufacturing
* Agriculture
* Fishing
* Forestry
* Gas
* Electricity
* Waste
* Scrap materials

Imports are excluded, but locally produced goods that are transported between businesses owned by the same corporation are included. Items produced domestically specifically for the military are also included.<ref>{{Cite web |title=Validation request |url=https://www.conference-board.org/pdf_free/economics/bci/BCI-Handbook.pdf |access-date=2023-07-24 |website=www.conference-board.org}}</ref>

== Calculation ==
The PPI is determined by taking the average weighted price of goods and services produced in the U.S. for the current month and year, dividing it by the average weighted prices of goods and services produced in the U.S. during a base month and year, and then multiplying the outcome by 100.<ref>{{Cite web |title=Producer Price Index Frequently Asked Questions : U.S. Bureau of Labor Statistics |url=https://www.bls.gov/ppi/faqs/questions-and-answers.htm#6 |access-date=2023-07-24 |website=www.bls.gov |language=en-us}}</ref>

For example, if the average weighted price of goods and services in the U.S. during July 2023 is $120, and the average weighted price during the base month, January 2022, is $100, the PPI for July 2023 would be calculated as follows:

PPI = (Average Weighted Price in July 2023 / Average Weighted Price in January 2022) x 100 = ($120 / $100) x 100 = 120

Thus the PPI for July 2023 would be 120.


== Related measures ==
== Related measures ==
A number of countries that now report a producer price index previously reported a [[wholesale price index]].
A number of countries that now report a producer price index previously reported a [[wholesale price index]].


== PPIs around the world ==
== By country ==


=== United States ===
=== United States ===
⚫
{{Main|U.S. Producer Price Index}}
[[File:Inflation data.webp|thumb|350px|right|PPI is a [[leading indicator]], CPI and PCE [[Latency (engineering)|lag]]<ref>{{cite web | url=https://www.yahoo.com/now/does-producer-price-index-tell-190327824.html | title=What Does the Producer Price Index Tell You? }}</ref>
[[File:Inflation data.webp|thumb|350px|right|PPI is a [[leading indicator]], CPI and PCE [[Latency (engineering)|lag]]<ref>{{cite web | url=https://www.yahoo.com/now/does-producer-price-index-tell-190327824.html | title=What Does the Producer Price Index Tell You? }}</ref>
{{legend-line|#00A2FF solid 3px|PPI}}
{{legend-line|#00A2FF solid 3px|PPI}}
Line 38: Line 67:
{{legend-line|#FF2600 solid 3px|[[Personal consumption expenditures price index|PCE]]}}
{{legend-line|#FF2600 solid 3px|[[Personal consumption expenditures price index|PCE]]}}
{{legend-line|#D41876 solid 3px|Core PCE}}]]
{{legend-line|#D41876 solid 3px|Core PCE}}]]

⚫
{{Main|U.S. Producer Price Index}}
In the US, the PPI was known as the Wholesale Price Index, or WPI, up to 1978. The PPI is one of the oldest continuous systems of statistical data published by the [[Bureau of Labor Statistics]], as well as one of the oldest economic time series compiled by the [[Federal government of the United States|Federal Government]].<ref>{{cite book|title=BLS Handbook of Methods|chapter= Chapter 14 Producer Prices, Background |url=http://www.bls.gov/opub/hom/homch14_a.htm| archive-url=https://web.archive.org/web/20101213024233/http://www.bls.gov/opub/hom/homch14_a.htm |archive-date=2010-12-13 |url-status=dead }}</ref> The origins of the index can be found in an 1891 [[U.S. Senate]] resolution authorizing the Senate Committee on Finance to investigate the effects of the tariff laws "upon the imports and exports, the growth, development, production, and prices of agricultural and manufactured articles at home and abroad".<ref>[http://www.bls.gov/ppi/ppicpippi.htm Senate Committee on Finance, Wholesale Prices, Wages, and Transportation, Senate Report No. 1394, "The Aldrich Report," Part I, 52nd Congress, 2d sess., March 3, 1893; and U.S. Department of Labor, Course of Wholesale Prices, 1890–1901, Bulletin No. 39, March 1902, pp. 205–09.]</ref>
In the US, the PPI was known as the ''wholesale price index'', or WPI, up to 1978. The PPI is one of the oldest continuous systems of statistical data published by the [[Bureau of Labor Statistics]], as well as one of the oldest economic time series compiled by the [[Federal government of the United States|Federal Government]].<ref>{{cite book|title=BLS Handbook of Methods|chapter= Chapter 14 Producer Prices, Background |url=http://www.bls.gov/opub/hom/homch14_a.htm| archive-url=https://web.archive.org/web/20101213024233/http://www.bls.gov/opub/hom/homch14_a.htm |archive-date=2010-12-13 |url-status=dead }}</ref> The origins of the index can be found in an 1891 [[U.S. Senate]] resolution authorizing the [[Senate Committee on Finance]] to investigate the effects of the tariff laws "upon the imports and exports, the growth, development, production, and prices of agricultural and manufactured articles at home and abroad".<ref>[http://www.bls.gov/ppi/ppicpippi.htm Senate Committee on Finance, Wholesale Prices, Wages, and Transportation, Senate Report No. 1394, "The Aldrich Report," Part I, 52nd Congress, 2d sess., March 3, 1893; and U.S. Department of Labor, Course of Wholesale Prices, 1890–1901, Bulletin No. 39, March 1902, pp. 205–09.]</ref>


=== India ===
=== India ===
{{Main|Producer Price Index (India)}}
{{Main|Producer Price Index (India)}}
The [[India]]n '''Wholesale Price Index (WPI)''' was first published in 1902, and it now uses CPI. PPI is not yet formulated in India.<ref>{{Cite web|url=http://www.financialexpress.com/economy/new-wpi-series-india-moves-to-concept-of-producer-price-index-to-better-gauge-actual-price-pressure-in-economy/666547/|title=New WPI series: India moves to concept of producer price index to better gauge actual price pressure in economy}}</ref><ref>{{Cite web|url=https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=457|title=......it would be desirable to initiate steps to develop a producer price index (PPI) for the country.}}</ref>
The [[India]]n '''wholesale price index''' (WPI) was first published in 1902, and the country now uses [[CPI]]. No PPI is formulated in India.<ref>{{Cite web|url=http://www.financialexpress.com/economy/new-wpi-series-india-moves-to-concept-of-producer-price-index-to-better-gauge-actual-price-pressure-in-economy/666547/|title=New WPI series: India moves to concept of producer price index to better gauge actual price pressure in economy}}</ref><ref>{{Cite web|url=https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=457|title=...it would be desirable to initiate steps to develop a producer price index (PPI) for the country.}}</ref>


== See also ==
== See also ==
* [[Consumer price index]]
* [[Consumer price index]]
* [[Inflation]]
* [[Inflation]]
* [[Substitute good]]
* [[Substitution (economics)|Substitution]]
* [[2000s commodities boom]]
* [[2000s commodities boom]]
* [[2020s commodities boom]]
* [[2020s commodities boom]]

Latest revision as of 02:49, 9 November 2023

Producer Price Index
  PPI final demand
  Core PPI
U.S. Producer Price Index Relative Importance for commodities [1]
  Fuels
  Metals
  Chemicals
  Machinery
  Processed foods & feeds
  Transportation equipment
  Farm products
  Pulp / paper
  Rubber / plastic
  Miscellaneous
  Nonmetallic mineral
  Lumber / wood
  Furniture / household goods
  Textile / apparel
  Hides, skin, leathers

A producer price index (PPI) is a price index that measures the average changes in prices received by domestic producers for their output. Formerly known as the wholesale price index between 1902 and 1978, the index is made up of over 16,000 establishments providing approximately 64,000 price quotations that the U.S. Bureau of Labor Statistics (BLS) compiles each month to represent thousands of different goods and services.[2]

Its importance is being reduced by the steady decline in manufactured goods as a share of spending.[3] When manufacturers face increased production costs (input costs), businesses must reconsider their pricing approach by either:

  1. Absorbing higher manufacturing costs, which may maintain customer satisfaction but can impact the company's profitability.
  2. Transferring those costs to consumers, which may boost business profits, but means customers will face higher prices for the goods and services.[4]

Coverage

[edit]

The PPI system encompasses the production of all industries in the sectors involved in manufacturing goods:[5]

  • Mining
  • Manufacturing
  • Agriculture
  • Fishing
  • Forestry
  • Gas
  • Electricity
  • Waste
  • Scrap materials

Imports are excluded, but locally produced goods that are transported between businesses owned by the same corporation are included. Items produced domestically specifically for the military are also included.[6]

Calculation

[edit]

The PPI is determined by taking the average weighted price of goods and services produced in the U.S. for the current month and year, dividing it by the average weighted prices of goods and services produced in the U.S. during a base month and year, and then multiplying the outcome by 100.[7]

For example, if the average weighted price of goods and services in the U.S. during July 2023 is $120, and the average weighted price during the base month, January 2022, is $100, the PPI for July 2023 would be calculated as follows:

PPI = (Average Weighted Price in July 2023 / Average Weighted Price in January 2022) x 100 = ($120 / $100) x 100 = 120

Thus the PPI for July 2023 would be 120.

[edit]

A number of countries that now report a producer price index previously reported a wholesale price index.

By country

[edit]

United States

[edit]
Main article: U.S. Producer Price Index
PPI is a leading indicator, CPI and PCE lag[8]
  PPI
  Core PPI
  CPI
  Core CPI
  PCE
  Core PCE

In the US, the PPI was known as the wholesale price index, or WPI, up to 1978. The PPI is one of the oldest continuous systems of statistical data published by the Bureau of Labor Statistics, as well as one of the oldest economic time series compiled by the Federal Government.[9] The origins of the index can be found in an 1891 U.S. Senate resolution authorizing the Senate Committee on Finance to investigate the effects of the tariff laws "upon the imports and exports, the growth, development, production, and prices of agricultural and manufactured articles at home and abroad".[10]

India

[edit]
Main article: Producer Price Index (India)

The Indian wholesale price index (WPI) was first published in 1902, and the country now uses CPI. No PPI is formulated in India.[11][12]

See also

[edit]

References

[edit]
  1. ^ "PPI Tables : U.S. Bureau of Labor Statistics".
  2. ^ "Producer Price Index Home: U.S. Bureau of Labor Statistics". www.bls.gov. Retrieved 2023-07-24.
  3. ^ The Economist, Volume 387, May 31 – June 6, 2009, p. 109
  4. ^ "Britannica Money". www.britannica.com. Retrieved 2023-07-24.
  5. ^ Salvucci, Jeremy (2023-06-15). "What Is the Producer Price Index (PPI) & Why Is It Important?". TheStreet. Retrieved 2023-07-24.
  6. ^ "Validation request" (PDF). www.conference-board.org. Retrieved 2023-07-24.
  7. ^ "Producer Price Index Frequently Asked Questions : U.S. Bureau of Labor Statistics". www.bls.gov. Retrieved 2023-07-24.
  8. ^ "What Does the Producer Price Index Tell You?".
  9. ^ "Chapter 14 Producer Prices, Background". BLS Handbook of Methods. Archived from the original on 2010-12-13.
  10. ^ Senate Committee on Finance, Wholesale Prices, Wages, and Transportation, Senate Report No. 1394, "The Aldrich Report," Part I, 52nd Congress, 2d sess., March 3, 1893; and U.S. Department of Labor, Course of Wholesale Prices, 1890–1901, Bulletin No. 39, March 1902, pp. 205–09.
  11. ^ "New WPI series: India moves to concept of producer price index to better gauge actual price pressure in economy".
  12. ^ "...it would be desirable to initiate steps to develop a producer price index (PPI) for the country".
[edit]
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