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The Producer Price Index

When economists look for warning signs of inflation they typically consult the producer price index.

Formerly called the wholesale price index, the PPI is the oldest continually published price index in the United States. It measures monthly changes in wholesale prices for 2,800 commodities sold to a representative 7,000 companies.

The consumer equivalent is the consumer price index. Both indexes are considered indicators of the potential for inflation, which is the rise in prices of goods and services. But many economists say that pricing trends show up more quickly in wholesale prices than in consumer prices.

The PPI is broken down into components by commodity, industry sector and stage of processing. Crude materials, intermediate materials and finished goods are listed on separate indexes and distinctions are made between durable and nondurable goods, farm products and industrial goods.

Usually, though, the PPI figure that is publicized in the news media refers to the finished goods index. Finished goods are already processed and ready for sale to the ultimate user.

These goods include trucks, farm equipment, machinery, food, clothing, appliances, cars and others.

Although the PPI tracks some consumer prices, it differs from the consumer price index in that it excludes services, housing, and used cars. Also, CPI figures may include retailers' profits _ called markups _ on prices, but the PPI does not.


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