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Producer Price Index (PPI) Presented by: Maritza Canales Bryan Chua.

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Presentation on theme: "Producer Price Index (PPI) Presented by: Maritza Canales Bryan Chua."— Presentation transcript:

1 Producer Price Index (PPI) Presented by: Maritza Canales Bryan Chua

2 PPI Published by: Bureau of Labor Statistics of the U.S Department of Labor Published by: Bureau of Labor Statistics of the U.S Department of Labor Frequency: Monthly Frequency: Monthly Period Covered: Prior Month Period Covered: Prior Month Volatility: Moderate Volatility: Moderate Market Significance: High Market Significance: High Good Measure of Inflation Website: Website:

3 What is it? The PPI measures changes in prices that manufacturers and wholesalers pay for goods during various stages of production. The PPI measures changes in prices that manufacturers and wholesalers pay for goods during various stages of production. The PPI looks at three areas of production: The PPI looks at three areas of production: 1. Crude Goods - raw materials entering the market for the first time. 2. Intermediate Goods - commodities that have undergone transitional processing before becoming the final product. 3. Finished Goods - goods that are ready for the marketplace.

4 What is in the Report? The PPI tracks price change for practically the entire output of domestic goods-producing sectors: agriculture, forestry, fisheries, mining, scrap, and manufacturing. The PPI tracks price change for practically the entire output of domestic goods-producing sectors: agriculture, forestry, fisheries, mining, scrap, and manufacturing. PPI tracks the prices of crude goods, intermediate goods, and finished goods. PPI tracks the prices of crude goods, intermediate goods, and finished goods.

5 Why is it Important? PPI is the first major inflationary number that comes out during the month. PPI is the first major inflationary number that comes out during the month. PPI is the indicator of overall price movement at the producer level. PPI captures price movement prior to the retail level. It may foreshadow subsequent price changes for business and consumers. PPI is the indicator of overall price movement at the producer level. PPI captures price movement prior to the retail level. It may foreshadow subsequent price changes for business and consumers. Any sign of inflation here may lead to inflationary pressures at the retail level. If businesses pay more for their goods, they are more likely to pass along some of their cost to the consumer. Any sign of inflation here may lead to inflationary pressures at the retail level. If businesses pay more for their goods, they are more likely to pass along some of their cost to the consumer.

6 Keys to Interpreting the Data Focus on the Finished Goods Index and especially the Core Rate for Finished Goods. Focus on the Finished Goods Index and especially the Core Rate for Finished Goods. If you find that there is inflation in the Finished Goods Index, it may be safe to assume that some of these inflationary cost may ultimately be passed on to the consumer down the road. If you find that there is inflation in the Finished Goods Index, it may be safe to assume that some of these inflationary cost may ultimately be passed on to the consumer down the road.

7 Keys to Interpreting the Data Focus on the Core Rate for Finished Goods. Focus on the Core Rate for Finished Goods. The Core Rate is the commodity data less food and energy costs. The Core Rate is the commodity data less food and energy costs. It is important to subtract food and energy costs because they can rise or fall as a result of droughts, long winters, natural disasters, tensions in the Middle East, factors that have nothing to do with the business cycle. It is important to subtract food and energy costs because they can rise or fall as a result of droughts, long winters, natural disasters, tensions in the Middle East, factors that have nothing to do with the business cycle. By doing so gives you a clearer picture of the PPI. By doing so gives you a clearer picture of the PPI.

8 Keys to Interpreting the Data Look at the total Finished Goods index to help determine the behavior of consumer prices in the long run (6-9 months). Look at the total Finished Goods index to help determine the behavior of consumer prices in the long run (6-9 months). Look at the Core Rate to determine month to month changes in inflation that will serve as a guide for anticipating near-term inflation. Look at the Core Rate to determine month to month changes in inflation that will serve as a guide for anticipating near-term inflation.

9 Determining the % Index point change Finished Goods Price Index Less previous index Equals index point change 2.5 Index percent change Index point change 2.5 Divided by the previous index Equals Result multiplied by x 100 Equals percent change 1.6

10 Latest Releases Released May 11, 2007 by the BLS. The Producer Price Index for Finished Goods increased 0.7 percent in April (SA). This advance followed a 1.0-percent rise in March and a 1.3-percent increase in February. In January, it decreased 0.6%. In April, the index for the Core Rate for Finished Goods remained unchanged for the second consecutive month. This followed an increase of 0.4% in February. In January, it increased 0.3%.

11 Historical Data Finished Goods, Monthly Percentage Change (SA) Finished Goods, Monthly Percentage Change (SA) Finished Goods, Monthly Index Change (SA) Finished Goods, Monthly Index Change (SA)

12 Core Rate Monthly Index Change (SA) April 2006 – April 2007

13 Core Rate Monthly % Change (SA) April 2006 – April 2007

14 Data Analysis It appears that there are increases in PPI for Finished Goods for the past four months. Those percentage increases have slowly declined based on the data of the past four months. This tells us that consumer prices should rise moderately in the long term (6- 9months) and that the economy should continue to expand. It appears that there are increases in PPI for Finished Goods for the past four months. Those percentage increases have slowly declined based on the data of the past four months. This tells us that consumer prices should rise moderately in the long term (6- 9months) and that the economy should continue to expand. It appears that the Core Rate for Finished Goods as remained the same for the past two months. This tells us that short term inflation should remain unchanged. This also shows signs that the economy has slowed for the first four months of the year. It appears that the Core Rate for Finished Goods as remained the same for the past two months. This tells us that short term inflation should remain unchanged. This also shows signs that the economy has slowed for the first four months of the year. Based on this information we conclude that the Federal Funds Rate should remain at 5.25%. Based on this information we conclude that the Federal Funds Rate should remain at 5.25%.

15 Works Cited Bureau of Labor and Statistics U.S. Department of Labor. May Bureau of Labor and Statistics U.S. Department of Labor. May Baumohl, Bernard. “The Secrets of Economic Indicators.” New Jersey. Wharton School Publishing Baumohl, Bernard. “The Secrets of Economic Indicators.” New Jersey. Wharton School Publishing. 2006


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