Producer Price Index (PPI)
Plain definition
The Producer Price Index measures the average change in the selling prices received by domestic producers for their output — at the farm, factory, and wholesale stages. It tracks inflation from the seller's perspective, before goods reach consumers.
In economics
PPI is a leading indicator: rising producer costs often pass through to consumer prices months later, so central banks and analysts watch PPI for early inflation signals. Unlike CPI, it covers intermediate goods and business-to-business transactions. A widening gap between PPI and CPI can signal margin pressure on firms — or pricing power if firms pass costs on.
Example
If the PPI for processed foods jumps 6% after a drought raises grain prices, grocery chains will likely raise shelf prices within a few months — the CPI for food follows with a lag. An investor watching PPI gets the warning before it shows up in the consumer basket.
PPI is often confused with CPI, but they measure different stages: PPI tracks what producers receive (wholesale, includes business inputs), while CPI tracks what consumers pay (retail basket). PPI can rise while CPI stays flat if firms absorb costs — and PPI excludes imports and services households buy directly.