What Is a Producer Price Index?

The Producer Price Index (PPI) is an index that measures changes in the ex-factory price of industrial products and the degree of change. It is an important economic indicator that reflects the price changes in the production sector in a certain period. Important basis. The Producer Price Index (PPI) is different from the CPI. The main purpose is to measure the total cost of a basket of goods and services purchased by an enterprise. Because companies eventually have to transfer their costs to consumers in the form of higher consumer prices, it is generally believed that changes in the production price index are useful for predicting changes in the consumer price index.

Production price index

Release: The PPI report is released two weeks after the end of the month.

On March 8, 2017, the National Bureau of Statistics released data showing that in February 2017, the ex-factory price index (PPI) for industrial producers rose by 7.8% year-on-year, an increase of 0.9 percentage points from January. ^[2]

The production price index surveys 9 categories of commodities:

Fuel and power;

Non-ferrous metals;

Non-ferrous metal materials;

Chemical raw materials;

Wood and pulp;

Building materials: steel, wood, cement;

Agricultural and sideline products;

Textile raw materials.

Industrial control products

The producer price index is used to measure the price status of the purchases required by producers in the production process; therefore, this index includes raw materials,

Differences and connections between PPI and CPI

According to the law of price transmission, PPI has a certain impact on CPI. PPI reflects the price level in the production link, and CPI reflects the price level in the consumption link. Generally, the fluctuation of the overall price level first appears in the production field, then spreads to downstream industries through the industrial chain, and finally affects consumer goods in the circulation field. The production route that uses industrial products as raw materials, that is, the price of industrial products, to CPI is: the transmission from raw materials production materials living materials.

Because CPI includes not only consumer product prices, but also service prices, the statistical caliber of CPI and PPI is not strictly corresponding. Therefore, it is possible that the changes in CPI and PPI will be inconsistent in a certain period. However, CPI and PPI have been in a state of divergence for a long time, which does not conform to the law of price transmission. If there is a break in price transmission, the main reasons are that the industrial product market is in the buyer's market and the government's artificial control over the price of public goods. At present, the prices of industrial products that can be successfully transmitted (mainly the prices of energy raw materials such as electricity, coal, water, etc.) are mainly within the scope of government price adjustment. ^[4]