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What is PPI? How does it relate to CPI?

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Smart Jerry wrote a column · Oct 23, 2021 00:07
Last time we talked about what CPI is, today we'll talk about its perfect partner——PPI.
1. What is PPI？
The Producer Price Index (PPI) is used to measure commodity prices, which represents the average price of goods purchased by manufacturers.
Source:  Forex Gump
Source:  Forex Gump
2. Why PPI is CPI's perfect partner?
In general, PPI measures the average price of upstream market, and CPI represents average price of downstream markets.
What is PPI? How does it relate to CPI?
When the upstream price increases, the downstream market will receive increased signs, and the price gap between the two markets can be filled with cost-shifting.
For example, if lumber's price increases, the price of wooden stools will increase.
Therefore, investors can use PPI to predict CPI. This is why they are perfect partners.
Don't read this:What is CPI?

3. What is the PPI for?
PPI can measure the inflation rate experienced by manufacturers.
If PPI is higher than expected, this means the inflation risk is rising from manufacturers.
The Fed may increase the interest rates based on an increasing PPI, which results in bullish on the U.S. dollar.
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