Producer Price Index (PPI)

Table of Contents

1. What is the Producer Price Index (PPI)?
2. Market Impact
3. Key Considerations
4. Release Times (Daylight Saving / Standard Time)
5. Summary

1. What is the Producer Price Index (PPI)?

Overview

The Producer Price Index (PPI) is an economic indicator that measures price changes received by producers for their goods and services. While the Consumer Price Index (CPI) focuses on prices paid by consumers, the PPI reflects changes in the prices that producers receive.

PPI is considered a leading indicator of inflation because it tracks how changes in production costs might eventually pass through to consumers. When PPI rises, it often signals that companies may face higher costs, which can later contribute to increases in consumer prices (CPI).

There are three main types of PPI:

• Headline PPI: Includes all items.
• Core PPI: Excludes food and energy prices.
• Stage-of-Processing PPI: Divides the index into raw materials, intermediate goods, and finished goods.

2. Market Impact

Because PPI reflects changes in corporate production costs, it serves as a leading gauge of inflationary pressure. In particular, a rise in PPI suggests that companies may pass higher costs on to consumers, pushing CPI upward. Therefore, PPI is one of the key indicators the Federal Reserve (FRB) considers when deciding on rate hikes or cuts.

Main Effects

• PPI higher than expected (stronger inflation pressure) → USD strength, rising yields, potential equity weakness
• PPI lower than expected (weaker inflation pressure) → USD weakness, lower yields, potential equity strength

However, PPI increases do not always directly translate into CPI rises. For this reason, it’s best to analyze PPI together with CPI, employment data, and other macro indicators rather than in isolation.

3. Key Considerations

1. Understand the difference between PPI and CPI
   • PPI measures changes in producer prices, while CPI measures changes in consumer prices.
   • Even if PPI rises, CPI may not move as much if companies absorb higher costs rather than passing them on to consumers.
2. Focus on Core PPI
   • Headline PPI can be heavily influenced by volatile energy and food prices.
   • The Fed tends to focus more on Core PPI for a clearer picture of underlying inflation trends.
3. Consider business-cycle effects
   • When the economy is strong, firms can pass costs to consumers more easily, making PPI a stronger driver of CPI.
   • During recessions, cost pass-through is limited, so PPI increases may have little effect on CPI.

4. Release Times (Daylight Saving / Standard Time)

PPI is released mid-month (usually the day after CPI).

*When the U.S. observes Daylight Saving Time, the release is one hour earlier in Japan.

5. Summary

• PPI measures producer cost changes and serves as a leading indicator of inflation.
• A rise in PPI suggests that corporate cost pressures could flow through to higher CPI readings.
• Analyzing the relationship between PPI and CPI helps gauge potential Fed policy impacts.
• PPI is released mid-month at 8:30 a.m. ET / 9:30 p.m. JST (DST) or 10:30 p.m. JST (Standard Time).