What does the Producer Price Index (PPI) measure?

The Producer Price Index (PPI) measures the average changes in prices received by domestic producers for their output over time. Specifically, it reflects the prices that producers receive for their goods and services at the wholesale level, which includes both raw materials and finished products before reaching the consumer. This index serves as a significant economic indicator because it can provide insights into inflationary trends at the production stage, which can eventually influence consumer prices.

The PPI is distinct from other indices like the Consumer Price Index (CPI), which specifically measures the final consumer prices. Any changes reflected by the PPI can ultimately have an impact on costs to consumers, but it does not directly measure consumer prices, cost of living adjustments, or wages of production workers. Understanding the PPI is crucial for economists and policymakers to gauge potential changes in inflation and other economic conditions before they reach the consumer market.