Producer price index (PPI)

A statistical measure compiled by a national statistics agency from the seller's side of the transaction. Prices are collected at the point of sale by the producer, before wholesale and retail margins, most transport costs and most taxes, and are weighted by the value of each industry's output. Sub-indices commonly separate stages of processing, from raw materials through intermediate goods to finished ones, and a core measure excluding food and energy is published alongside the headline for the same reason it is on the consumer side.

It is followed for two different reasons. As an inflation signal it sits upstream of the consumer price index, on the reasoning that input and factory gate costs can pass through into shop prices later. As a margin signal it is read against consumer prices directly: producer prices rising faster squeezes the seller, and the reverse widens the margin. It is released monthly on a published calendar, usually close to the consumer reading, and markets price it against a published consensus like any other release.

Pass through is the part most often overstated. Competition, imported substitutes, wage costs and services all interrupt the link, and services dominate consumer baskets while being thinly represented in producer ones, so the two indices are not measuring the same economy. Empirical work on the lead relationship finds it weak and unstable rather than absent. Two further limits are worth carrying: the index covers domestic output, so imported goods sit outside it entirely, and coverage and weighting differ enough between countries that cross country comparison of the levels is unsafe.