Importance: ***

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.

Related Indicators:

Source: Department of Labor

Frequency: Monthly

Availability: Two to three weeks following the reported month.

Direction:

Timing:

Volatility: Moderate

Likely Impact on Financial Markets:

         Interest Rates: Larger-than-expected monthly increase or increasing trend is considered
         inflationary, causing bond prices to drop and yields and interest rates to rise.

        Stock Prices:

        Exchange Rates:

Ability to Affect Markets:

Analysis of the Indicator:

The PPI categories and respective weightings are:
    Finished Consumer Goods 40%
     Food 26%
     Capital Equipment 25%
     Energy 9%

The data covers three stages of production: finished goods, intermediate goods (those that are paritially
processed), and crude materials. The latter two stages are important because they provide an early
indication of price changes in the pipeline and forewarn of rising prices.

The PPI can be volatile. It is best to use the six-month to one-year moving average. The bond market
reacts negatively to larger-than-expected increases in the PPI. Conversely, drops in the index are
viewed favorably by investors, pushing bond prices up and yields down.

WEB Links

A Graph of the latest PPI data from The Economic Statistics Briefing Room of the White House.

The latest PPI report from BLS.