Prices received index

Transcription

Welcome to Alanis Business Academy. I'm Matt Alanis and this is the Producer Price Index. The producer price index, referred to simply as PPI, is a much less common measure inflation. Although it gets much less publicity than the popular consumer price index, the producer price index may be a more valuable indicator as it can provide a signal for inflation at the consumer level. For information on the consumer price index check out episode 133 titled how to measure the rate of inflation. Like CPI, the producer price index refers to a family of indexes that measure the average change in prices over time. But instead of measuring the prices that consumers pay, the producer price index measures the prices that domestic producers receive for goods and services. Producers refers to companies that manufacture, grow, or supply goods or commodities for sale. These companies then offer those goods to other businesses, often referred to as retailers, who then offer goods and services to the final consumer. Explained another way, the producer price index reflects the prices that businesses pay for the goods that they sell. This is why the producer price index can serve as a signal for inflation at the consumer level, since an increase in average prices at the retail level is likely to be passed on to the consumer. There are a few exception to this of course. Like during an economic recession businesses are much more likely to simply absorb the increased expenses for fear of alienated consumers with price increases. However when times are good, businesses are much less hesitant in general to pass these additional expenses on to consumers. After all, not doing so could force businesses to sustain heavy losses due to shrinking profit margins. So now that we know a little bit about the producer price index and its value, lets get into how it's compiled. Similar to the consumer price index, PPI is compiled by the Bureau of Labor Statistics through a survey. This survey is administered to a sample of 25,000 establishment that provide approximately 100,000 price quotations each month. Participants in the survey, who are selected randomly via systematic sampling, report price data through mail or fax and the BLS compiles this data to produce the PPI. If your curious about what systematic sampling is, all this means is that the BLS takes a list of companies in an industry and picks them randomly in a specific interval. So the BLS could say that every 5th company on the list is going to receive a request for pricing information. Much like the CPI-U, it becomes difficult to gauge true moments in the producer price index due to fluctuations in food and energy. These two categories are very volatile and make establishing a trend for PPI a nightmare. So the BLS does us all a favor and provides what is called the core PPI, which removes both food and energy costs. Just to give you an example of how much these two categories affect PPI, the Producer Price Index for finished good rose in last month .3 percent. However removing foods and energy costs from the index actually resulted in a PPI of 0. Meaning that average prices for finished goods at the producer level didn't rise at all from the prior month. This has been the Producer Price Index. For questions please leave them in the comment box below and I'll do my best to get back to those in a timely fashion. If you're interested in learning more about economic indicators, check out the playlist titled Economic Indicators 101 and also subscribe to Alanis Business Academy for videos on other business topics. Lastly, do remember to like and share this video with your friends. Thanks for watching.