PPI (Producer Price Index)
A measure of how much the prices companies receive when they make and sell goods (producer-level prices) have risen — the stage before consumer prices (CPI).
PPI = An index of changes in the prices producers receive at the shipment stage (released by the U.S. Department of Labor)
When PPI rises, price pressure at the production stage is increasing, which affects the outlook for CPI and interest rates.
In plain terms
PPI measures how much the prices companies receive when they make goods and pass them along at wholesale have risen. It's not the price we pay at the store (CPI), but the stage before that — "factory gate" prices.
When prices rise at the producer stage, the increase often spreads to consumer prices (CPI) after some lag. That's why PPI is also used as a clue for peeking ahead at where consumer prices may be headed.
What it tells you
PPI shows whether price pressure is building upstream in the supply chain. If PPI rises first, it may be a signal that CPI could follow before long.
From a company's point of view, a rise in PPI is a cost burden. If it passes that burden into product prices, it protects its margin; if it can't, the margin gets shaved.
Formula
PPI = An index of changes in the prices producers receive at the shipment stage (released by the U.S. Department of Labor) Prices at an earlier stage of the supply chain than CPI (consumer prices)
What high or low means
When PPI rises, price pressure at the production stage is increasing, which affects the outlook for CPI and interest rates. When it moves in the same direction as CPI, the signal about the inflation trend becomes clearer.
That said, PPI doesn't always carry straight through to CPI. It depends on how far companies pass rising costs on to consumers.
A rise in PPI doesn't necessarily mean CPI rises with it. When competition is fierce, companies may absorb costs themselves instead of passing them on, so producer prices and consumer prices can diverge.
Looking at core PPI, which excludes volatile items like energy and food, alongside the headline figure makes the trend easier to see.
PPI is a macro indicator. This term is background knowledge for understanding market news. (※ Our screens deal with individual companies' SEC-filed financials.)
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This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.