What does the producer price index measure?

The producer price index (PPI) measures changes in the prices received by domestic producers for their output. It specifically focuses on the prices of goods at the wholesale level, which includes factors of production such as raw materials and intermediate goods. By tracking these price changes, the PPI can serve as an important indicator for future inflation trends, as increases in production costs often get passed on to consumers. Therefore, it provides insights into the inflationary pressures that might manifest in the consumer market later on.

Understanding the relationship between production costs and consumer prices is crucial for economic analysis, as it helps businesses and policymakers anticipate shifts in the economy. The PPI can signal potential inflation before it reaches consumers, making it a vital tool in economic forecasting and planning.