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Producer Price Index

Producer Price Index (PPI) is a price index that represents the changes in the selling prices received by the producers. PPI measures inflation from producer's perspective.

PPI for any period is likely to be different from the CPI because producers sell not only consumer goods but also intermediate goods to other firms at different stage. Even for final goods, the price received by the producers is often different from the price paid by the buyers because the latter includes taxes, subsidies, and distribution costs.

There are actually three different producer price indexes for goods representing the various stages of production: raw materials, intermediate goods, and finished goods.  These various indexes are important because if the cost of goods at an early stage of production go up it can be an early predictor of future inflation since when the costs of inputs goes up, firms often raise their prices.  This is an example of Cost Push Inflation.

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