Producer Price Index (PPI)

While the Consumer Price Index tracks prices paid by households, the PPI tracks prices at earlier stages of production, such as raw materials, intermediate goods used in manufacturing and finished goods sold by producers.

For example, if the prices of steel, chemicals and manufactured goods sold by factories rise, the PPI will increase, even before consumers see higher prices in shops.

The PPI is watched closely as a possible early signal of consumer inflation. When producers face higher costs, they often pass at least some of those increases on to consumers, so a rising PPI can suggest that consumer prices may rise later. However, the link is not exact, since businesses may absorb some cost increases by accepting lower profit margins.

Different countries publish their own producer price measures, sometimes called output and input price indices. Businesses also use the PPI to adjust long-term contracts for changes in costs.