Previous : 0.2%
Forecast : 3.2%

Definition : The producer price index (PPI) is the first indicator of inflation each month. It is a measure of wholesale prices at the producer level for consumer goods and capital equipment. Unlike the CPI, it does not include services. It compares prices for approximately 3,450 commodities to a base period. Currently, the base period, which equals 100, is the average prices that existed in 1982.

Source: Department of Labor issued on a monthly basis, it goes down in the recession times and up in times of economic boom (parallel with inflation) and it has a high degree of volatility.

Why is it useful?
Producer price index is a comprehensive index of wholesale price changes which indicates a future change in retail prices. PPI measures price change from the perspective of the seller. So in other words it is a measure of inflation. Any rise in prices from the producer's side will raise the prices throughout the channel to the final consumer.

In particular, the producer price indexes for all commodities foreshadow changes in the Consumer Price Index. An increase (or decrease) in these producer price indexes today are likely to be followed by a comparable increase (or decrease) in the Consumer Price Index.

Two things are taken into consideration when studying PPI; first, the price of purchasing the raw material for production and second, the demand of the final product. If the cost of purchasing raw materials goes up, then the price of the product itself will incline. Also, if the demand by the consumer increases, the price will inflate. Inclining demand will result to increased productivity which will require more labor. As seen before, more money in the hands of labor, leads to spending. This causes inflation and finally results to a rise in interest rates. The effect of this figure can be significant if the quarterly figures widely differ from the forecast and it will be a significant market mover.

The effect of a rise in this number will point to future hikes in key interest rates which drive the bond markets down and the combination of bond yields. Stocks and indices are also likely to be negatively affected as an increase in the PPI will point to higher interest rates which the stock market doesn't like to see…

For currencies the effect of high inflation can be uncertain, as from one side future interest rate hikes and modifications in the monetary policy is considered a strength to the currency; while at the same time high producer prices lower competitiveness in the overall markets.