Producers Price Index Definition. The Producer Price Index, or “PPI”, is the Department of Labor’s index of goods categorized by industry type and by the particular stage of an item’s production. Among these categories are raw materials, goods in various phases of production, and finished goods. This index measures average changes in prices received by domestic producers for their output, and as such, it is one of many indices that provide evidence that price inflation or deflation is occurring. The importance of the term has been decreased due to outsourcing practices and the steady decline of manufacturing as a driver of our economy. It is often assumed that the PPI and CPI will correlate. The Producer Price Index for finished goods tracks the average change in prices over time of domestically produced and consumed commodities. The PPI is also comprised of prices for both consumer goods and capital equipment, but excludes prices for services. The All Items CPI measures the average change in prices over time of goods and services purchased for personal consumption by urban U.S. households, regardless of the item’s country of origin. These definitional differences account for the variances between the two indices.
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