Producer Price Index
(PPI)
Presented by:
Maritza Canales
Bryan Chua
PPI
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Published by: Bureau of Labor Statistics of the
U.S Department of Labor
Frequency: Monthly
Period Covered: Prior Month
Volatility: Moderate
Market Significance: High
Good Measure of Inflation
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Website: http://www.bls.gov/ppi/
What is it?
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The PPI measures changes in prices that
manufacturers and wholesalers pay for goods
during various stages of production.
The PPI looks at three areas of production:
1.
2.
3.
Crude Goods - raw materials entering the market for
the first time.
Intermediate Goods - commodities that have undergone
transitional processing before becoming the final
product.
Finished Goods - goods that are ready for the
marketplace.
What is in the Report?
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The PPI tracks price change for practically the
entire output of domestic goods-producing
sectors: agriculture, forestry, fisheries, mining,
scrap, and manufacturing.
PPI tracks the prices of crude goods,
intermediate goods, and finished goods.
Why is it Important?
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PPI is the first major inflationary number that comes
out during the month.
PPI is the indicator of overall price movement at the
producer level. PPI captures price movement prior to
the retail level. It may foreshadow subsequent price
changes for business and consumers.
Any sign of inflation here may lead to inflationary
pressures at the retail level. If businesses pay more for
their goods, they are more likely to pass along some of
their cost to the consumer.
Keys to Interpreting the Data
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Focus on the Finished Goods Index and
especially the Core Rate for Finished Goods.
If you find that there is inflation in the
Finished Goods Index, it may be safe to
assume that some of these inflationary cost
may ultimately be passed on to the consumer
down the road.
Keys to Interpreting the Data
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Focus on the Core Rate for Finished Goods.
The Core Rate is the commodity data less food and
energy costs.
It is important to subtract food and energy costs
because they can rise or fall as a result of droughts,
long winters, natural disasters, tensions in the Middle
East, factors that have nothing to do with the
business cycle.
By doing so gives you a clearer picture of the PPI.
Keys to Interpreting the Data
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Look at the total Finished Goods index to
help determine the behavior of consumer
prices in the long run (6-9 months).
Look at the Core Rate to determine month to
month changes in inflation that will serve as a
guide for anticipating near-term inflation.
Determining the %
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Index point change
Finished Goods Price Index 160.9
Less previous index
158.4
Equals index point change
2.5
Index percent change
Index point change
2.5
Divided by the previous index 158.4
Equals
0.016
Result multiplied by 100
0.016 x 100
Equals percent change
1.6
Latest Releases
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Released May 11, 2007 by the BLS.
The Producer Price Index for Finished Goods
increased 0.7 percent in April (SA). This advance
followed a 1.0-percent rise in March and a 1.3-percent
increase in February. In January, it decreased 0.6%.
In April, the index for the Core Rate for Finished
Goods remained unchanged for the second consecutive
month. This followed an increase of 0.4% in February.
In January, it increased 0.3%.
Historical Data
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Finished Goods, Monthly Percentage Change 1997-2007 (SA)
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Finished Goods, Monthly Index Change 1997-2007 (SA)
April
February
December
October
August
June
161
160.5
160
159.5
159
158.5
158
157.5
157
156.5
April
Core Rate Monthly Index Change
(SA) April 2006 – April 2007
S1
Core Rate Monthly % Change (SA)
April 2006 – April 2007
1
0.8
April
February
December
October
August
June
-0.4
-0.6
April
0.6
0.4
0.2
0
-0.2
S1
Data Analysis
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It appears that there are increases in PPI for Finished Goods for
the past four months. Those percentage increases have slowly
declined based on the data of the past four months. This tells us
that consumer prices should rise moderately in the long term (69months) and that the economy should continue to expand.
It appears that the Core Rate for Finished Goods as remained
the same for the past two months. This tells us that short term
inflation should remain unchanged. This also shows signs that
the economy has slowed for the first four months of the year.
Based on this information we conclude that the Federal Funds
Rate should remain at 5.25%.
Works Cited
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Bureau of Labor and Statistics. 2007. U.S. Department of
Labor. May 2007. http://www.bls.gov/ppi/
Baumohl, Bernard. “The Secrets of Economic Indicators.” New
Jersey. Wharton School Publishing. 2006