The producer price index
The producer price index
The Producer Price Index (PPI) measures the average change over time in the selling prices received by domestic producers for their output. It’s an important economic indicator that helps assess inflation at the producer level, which can eventually affect consumer prices.
Key Points about PPI
- 1. Measurement: The PPI tracks the prices of goods and services sold by producers at different stages of production, from raw materials to finished goods.
- 2. Components: The PPI includes various indexes, such as:
- Final Demand: Measures price changes for goods, services, and construction sold to final demand.
- Intermediate Demand: Measures price changes for goods, services, and construction sold to businesses as inputs to production.
- 3. Calculation: The Bureau of Labor Statistics (BLS) collects price data from producers across the country to calculate the PPI.
- 4. Uses:
- Inflation Indicator: The PPI is a leading indicator of consumer price inflation, as changes in producer prices often get passed on to consumers.
- Economic Analysis: Helps economists and policymakers understand inflation trends and make informed decisions about monetary policy.
- Business Planning: Businesses use PPI data to adjust pricing strategies and forecast costs
The Producer Price Index (PPI) has a significant impact on financial markets due to its role as an indicator of inflation at the producer level. Here’s how PPI data can affect different financial markets:
Interest Rates
- Central Banks: Central banks, like the Federal Reserve, monitor PPI data to gauge inflationary pressures. Higher PPI (indicating higher producer prices) may lead to interest rate hikes to control inflation, while lower PPI may result in rate cuts to stimulate economic growth.
Bond Markets
- Bond Prices and Yields: There is an inverse relationship between PPI and bond prices. When PPI rises, bond prices tend to fall, leading to higher yields. Investors pay close attention to PPI data to assess the risk of inflation affecting purchasing power.
Stock Markets
- Investor Sentiment: Rising producer prices (higher PPI) can lead to concerns about increased costs for businesses, potentially impacting corporate earnings and stock prices. Conversely, low PPI can be favorable for stocks as it suggests stable production costs.
- Sector Performance: Different sectors react differently to inflation. For example, sectors like utilities and consumer staples may perform better during high inflation, while sectors like technology may be more sensitive to interest rate changes.
Currency Markets
- Exchange Rates: PPI data can influence currency exchange rates. A country with lower inflation may see its currency appreciate relative to countries with higher inflation.
Commodity Markets
- Commodity Prices: Higher inflation can increase demand for commodities as a hedge against inflation, driving up prices. Conversely, lower inflation can reduce demand and prices for commodities.
What do we expect?
US dollar entered into correction zone and so dollar will fall down, US based currencies will fall down while US quote currencies rally. US indices are also expected to move up, emerging markets will feel the heat and commodity prices sore up.
What do we expect ?
We expect the US dollars to weaken, so commodity prices will rally, expect bullish momentum in commodities and US markets. USD based currencies fall and USD quote currencies rally. Emerging markets will remain tepid.
Key factors
- Issuer: Bureau of labor statistics;
- Time: December 12, 01:30 PM GMT / 08:30 AM eastern /07: 30 AM central;
- LATEST DATA: 0.3%
- FORECAST: 0.3%
- Expected impact: dollar weakens, sending commodity and us quote pairs up; Us equity markets rally, emerging markets decline.