Key takeaways

• The PPI measures the change in selling prices received by domestic vendors and represents the cost of producing goods.
• The CPI measures the change in prices consumers pay for everyday items.
• Both reports influence the Federal Reserve when deciding whether to raise, lower, or hold interest rates.

The Producer Price Index and Consumer Price Index are two key indicators of the U.S. economy. In fact, one could make the case, these are the two most important reports released by the Bureau of Labor Statistics. Here is an explanation of how these indexes work, impact economic policy and influence investors.

What is the Producer Price Index?

The Producer Price Index (PPI) is a program overseen and published by the US Bureau of Labor Statistics (BLS). It tracks the wholesale selling prices that domestic manufacturers receive for their products and services. The prices collected represent the initial cost of a product or service as it reaches the market and tracks current pricing for around 10,000 products and services. This includes industries such as natural gas, agriculture, manufacturing, construction, retail, real estate, healthcare and more. The primary purpose of the PPI is to measure the change in prices producers receive for their goods and services.

The PPI uses samples from over 25,000 commercial entities that provide about 100,000 price quotations monthly. The businesses participate voluntarily in the program and are selected for the PPI by systematic sampling. The PPI undergoes regular resampling as market conditions and industries change.

How information from the PPI is used

Producers use the information collected from the PPI in various ways. Data from the PPI can be used for:
 

Source : PPI vs. CPI: Understanding The Producer Price Index And Consumer Price Index As An Investor