What the Producer Price Index (PPI) Says About Inflation

What is the PPI?

The PPI tracks the prices that producers and manufacturers receive for their goods from retailers and distributors. The PPI rises when producers and manufacturers charge higher prices for their products, likely to offset the rising costs of raw material or distribution.

In this way, PPI functions as another measure of inflation, similar to the consumer price index and personal consumption expenditures price index, which track the prices consumers pay for goods and services. But unlike those two indexes, the PPI shows how prices are changing for retailers who are buying at the wholesale level.

“In general, the PPI is about the price change from the perspective of the seller,” says Thomas McDonald, a senior economist at the BLS. That makes the PPI a leading indicator of inflation since higher prices on the producers’ end often lead to increased prices for consumers.

» MORE: Why is everything so expensive?

PPI categories

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).

February PPI report

The index was flat in February. Compared to a year ago, the index rose 3.2%.

Core PPI, which excludes food, energy and trade services, was up 0.2% in February and 3.3% compared to a year ago. While the month-over-month change shows slower growth compared to what was reported in December, the annual inflation rate ticked up compared to last month.

The report indicates that an increase in wholesale goods prices was offset by a decline in services prices.

Final demand goods: Prices for final demand goods ticked up 0.3% in February.

• The report attributes this month’s increase to a 1.7% rise in wholesale food prices, including a 53.6% rise in egg prices.

• The report also noted higher wholesale prices for pork, fresh and dry vegetables, electric power, tobacco products and carbon steel scrap.

• Prices fell for gas, processed young chickens and primary basic organic chemicals.

Final demand services: Prices for final demand services decreased 0.2% in February — the largest decline since July 2024, according to the report.

• Prices fell for machinery and vehicle wholesaling; food and alcohol retailing; automobiles and automobile parts retailing; apparel, footwear and accessories retailing; chemicals and allied products wholesaling; and residential real estate loans (partial).

• Prices rose for inpatient care and machinery and equipment parts and supplies wholesaling among other the services categories.

» MORE: What Is the PCE?

How is the PPI calculated?

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.

When is the PPI report released?