What is the PPI? – NerdWallet

The producer price index, or PPI, measures changes in prices paid to producers and manufacturers for goods and services.

• Current index: The PPI decreased 0.5% from February to March but increased 2.7% in the 12 months leading up to March. That’s according to the April 13 release from the U.S. Bureau of Labor Statistics, which updates the PPI monthly.

The PPI tracks the prices that producers and manufacturers receive for their goods from retailers and distributors. “In general, the PPI is about the price change from the perspective of the seller,” says Thomas McDonald, a senior economist at the BLS. Higher prices on the producers’ end often lead to increased prices for consumers, he adds.

The PPI rises when producers and manufacturers sell their products at higher-than-usual prices, likely to offset the rising costs of raw material or distribution. So retailers wind up paying higher prices from the wholesaler, and consumers then pay higher prices from the retailer.

In calculating the PPI, the BLS sorts products and services into two categories: final demand and intermediate demand.

Final demand refers to goods and services sold by the producer to retailers or distributors, who intend to sell those products to consumers.

Examples of a final demand good include, well, pretty much any physical product you could buy: clothes, computers, furniture, cosmetics — you get the picture. Examples of final demand services include air travel, internet, home security, cleaning services and financial advisement, according to the BLS.

Intermediate demand refers to goods and services sold to other manufacturers to be used in the production of other goods.

Here’s an example McDonald provides to explain how businesses use the PPI. Say you have a contract to pave and repave roads with Fictional County. In your contract, you’d likely include a clause that allows you to raise your price if, say, the PPI’s asphalt index rises (in other words, if asphalt becomes more expensive).

The BLS updates the PPI once a month. Its most recent report, released April 13, shows that the PPI declined 0.5% in March. More specifically:

• The prices for final demand goods decreased 1% in March.

• Roughly 80% of that decline in the index of final demand goods can be attributed to an 11.7% fall in fuel prices. 

• Also in March, prices for final demand services fell 0.3% — the steepest decline since April 2020, when that figure fell 0.5%, according to the BLS.

Once a month, the BLS solicits roughly 100,000 prices for specific products or groups of products from participating sellers. Then, those prices are weighted against their price in a “base” year, which for many products is 1982.

In addition to classifying products based on final demand or intermediate demand, the BLS sorts products and services by industry. It also categorizes them by commodity classification, which is solely based on their material composition.