PPI & Price Transmission
Calculate change within one producer-price series and distinguish producer receipts from consumer prices.
Question, try, then observe
What did you just see?
After an input shock, a manufacturer may absorb costs, improve productivity or raise its selling price. Retail adds transport, rent, taxes and competition. Each stage can change pricing, so a cost shock need not pass one-for-one into household bills.
Producer receipts versus consumer payments
Under US BLS methods, covers domestic goods producers and selected services. Consumer CPI can include imports; PPI excludes imports. CPI includes sales and excise taxes paid by consumers, while PPI excludes them. Transportation, distribution and retail services can separate the two prices. US retail/wholesale trade-services PPI measures gross margins between selling prices and replacement costs, rather than all shelf prices.
Check national methods before comparing
Taiwan's main goods observes domestic goods leaving the place of production; separate service-industry PPIs cover selected industries. Do not mix them as if they were the broader US aggregate. Check DGBAS and BLS product coverage, transaction stages, weights and tax conventions. One country's PPI is not an overall input-cost index for every business.
Pass-through is not a next-month forecast
The interaction applies a manufacturer pass-through share to one input shock, then adds a retail-price factor. It is an auditable same-period, single-item illustration, not official /CPI construction or an estimate of transmission delays. Exchange rates, contracts, inventories, demand and margins affect pass-through; CPI may be unchanged or falling while PPI rises.
Another example
- Choose one PPI series with consistent country, base, coverage and adjustment conventions.
- Enter 200 and 208 and verify both dates.
- Read +8 index points and +4%; compare with a same-period CPI +3% using percentage points.
Show formal definition and formula
PPI measures changes in selling prices received by domestic producers for goods and services; it is not a synonym for all input costs or wholesale prices. Both observations must belong to one comparable series.
Two-period producer price change
PPI measures changes in selling prices received by domestic producers for goods and services; it is not a synonym for all input costs or wholesale prices. Both observations must belong to one comparable series.
- PPI0
- Previous same-series index (points)
- PPI1
- Current same-series index (points)
- πPPI
- Two-period decimal change
- Units
- Index points are not percentages; π PPI is a decimal rate. Match series, base, country, conventions and comparison period.
Common mistakes
PPI is neither raw-material costs nor all wholesale prices. Do not subtract levels with different bases or assume rising producer prices guarantee higher CPI next month.
Frequently asked questions
Can PPI be negative?
Index levels must be positive; a period percentage change may be negative, indicating falling selling prices in that series.
You can now explore…
- Distinguish producer selling prices from consumer prices
- Understand conditional price transmission
Term reference1 terms
Open a term when you need a reminder. Underlined words in the article work too.