What is PPI?

The producer price index (PPI) is a measure of the average change of what prices domestic producers receive for their products and services. The PPI is calculated and released at 8:30 a.m. monthly by the U.S. Bureau of Labor Statistics (BLS). It is calculated from many indexes across many industries and types of products in order to capture the full picture of domestic output and the types of goods being produced.

See the release schedule on Webull Calendar.

Similar to CPI (consumer price index), PPI is also used as a tool to measure inflation on a wholesale level. The number is reported in MoM and YoY change. For example, the 2022 November PPI increased 0.3% for the month and 7.4% from a year ago.

How are the PPI and CPI connected?

The PPI is similar to the CPI (consumer price index) in that it measures the average value of products and services, but they are measured at opposite ends of the supply chain—price received by producers as opposed to prices paid by customers.

Though PPI and CPI data can be different, producer prices can indicate what prices will be like for consumers. When there is a recorded increase in the cost of producing a good or service, then the semi-finished and finished goods will also have a price increase.

As a result, the PPI is considered a leading indicator, meaning a rise in PPI will usually directly correspond to a rise in the CPI.

Core PPI: PPI calculated excluding food and energy

How are PPI and inflation connected?

PPI can be used to examine inflation through the lens of industries and businesses, which measures price changes on the production level. Being able to look at inflation before goods and services are purchased by consumers can be a way to predict levels of inflation ahead of the CPI.

When business input costs continually rise over time, wholesale inflation is occurring. Conversely, when the PPI goes down because input costs are decreasing, then wholesale deflation is occurring.

How does PPI impact the market?

When monitoring levels of inflation, policymakers will watch the PPI to try to maintain a degree of stability in prices, which can in turn impact monetary policies.

When the PPI is hot, indicating a rising inflation level, the Fed may increase the interest rate, causing the market to go down.

What does PPI mean to investors?

Short-term trading opportunities

As the PPI measures the rate of inflation from the perspective of businesses, it could impact Fed’s decision to adjust interest rates. PPI releases often lead to fluctuations in the stock market immediately, which may generate trading opportunities for short-term investors.
For example, the PPI rose 0.2% in October 2022, lower than the 0.4% estimate. The market went up on the release date with market anticipation that the rate hike would slow down—the Dow Jones index jumped almost 1.4% in ten minutes after market open.

Short-term investors can make a prediction before the release time and enter a position accordingly to make a profit. During times of inflation, if they expect the PPI to be lower than its estimate, they can go long to profit from the expected rise in index prices.

Long-term investment outlook

Moderate inflation can stimulate the economy, and stocks are likely to thrive as corporate profits are boosted. On the other hand, high inflation leads to less spending, higher interest rates, lower corporate profits, and stock market decline.

Long-term investors can look at the YoY change in PPI to predict where the market might be heading. When a bear market is expected, investors may wait to buy stocks until this phase is about to end. When a bull market is expected, they may increase their positions to profit from the long-term uptrend.

The Bottom Line

The PPI is a leading indicator that can be used to forecast the CPI and inflation rate. As a result, PPI releases often cause stock market fluctuations as changes in interest rates may soon follow. YoY changes in the PPI can also indicate the long-term outlook of the stock market.