Producer Price Index

Producer Price Index, formerly known as wholesale price index, measures the average change of the selling prices of the producers who sell goods. To compute this index, the mean of all the changes over a year is usually been taken. It measures the price changes according to the sellers’ lookout.

Perspectives:

The Producer Price Index concentrates on the area of industry based production and stage of processing based companies. It keeps track of the prices of foods, metals, oil and gases, and many other commodities except the price of services. Producer Price Index has been using the Standard Industrial Classification system to collect and annunciate the data for many years. High volatility items, like energy, have been annulled from the scope of the measurement of this index.

Interpretation:

• Most of the data is taken through a sampling of producers from different kind of industries. It measures the price change for a predefined reference period and that is 100. Shifting of price indexes from one month to another should not be expressed as a change in the index point. It’s better to express this change by percentage calculation.
• An increase of ‘X’ percent of the goods’ price index from the base period will be expressed as (100 + X). Then, it will be announced that prices received by the domestic producers of an orderly sample of finished goods, which did equal to hundred dollar in the base period, have risen from that base period to (100 + X)$ today, if dollar is taken as the unit of money here.

Classification:

The important structures of Producer Price Index are industry, commodity and Stage of Processing. Indexes in all structures are determined from the same collection of price information.

Uses of Producer Price Index:

• Producer Price Index for an industry computes the mean of all changes in the prices that have been received by selling the outputs.
• The Producer Price Index arranges the products by using material composition.
• Producer Price Index regroups the products in accordance with the buyers’ class.