PPI

Each and every country has a parameter to know the growth of its economy. A healthy economy facilitates a country to take various initiatives for the development and betterment of its people. We have many parameters to measure the growth of the economy, PPI is one of them. The meaning of PPI is directly associated with the production cost which gives a direct analysis of cost needed for production. Based on the data from PPI, governments find it easier to make and implement a policy which is good for the economy of the country.

In order to measure the situation, inflation or deflation and growth of the economy, we need some parameters. We have many kinds of indices to measure the prices of commodities which are based on different baskets commodities. We have WPI, CPI, PPI and so on to measure the prices.

Among these indices, PPI (Producer Price Index) can be said to be a crucial index in measuring the real price at the first point of the commodity.

Meaning of PPI- 

As the name suggests, a producer is the person who produces the goods or services and fixes a price of his commodity. It is the very first price of that commodity which is ready to be launched in the market. It is the first point of sale where the price is getting fixed. Although PPI is not measured in India, it is prevalent in many countries around the world. In the late 20th century, many countries started measuring PPI in place of WPI. The NITI Aayog of India has mapped the plan to introduce the PPI in India, we might witness the PPI in India soon.

Formula to measure PPI –

So, in all above formulas, we find that PPI or Producer Price Index is a widely used parameter to get the idea of average prices taken by the producers who produce the goods and services domestically.

Various agencies, like the Bureau of Labor Statistics of the US, cluster this data to get the idea of inflation in the economics of the country. 

If we compare the CPI (Consumer Price Index) with the PPI (Producer Price Index), there’s a basic difference between consumer and producer. The meaning of PPI is the first price at which the producer brings it out in the market whereas CPI is the measure of price paid by the consumer, that’s why the CPI is the general indicator for the inflation in the economy. CPI consists of all the taxes imposed on the goods and the services after its launch in the market. That’s why CPI is used as the normal indicator of inflation in the economy because it indicates the price paid by the customer to acquire something. On the other hand, PPI is used to understand the money needed in production and its output by the producer in the economy.

Conclusion

Here, we see that the meaning of PPI, is the price decided by the producer for its product, it consists of the cost required to make and launch that product. It is a direct measure to understand the output cost needed by the producer, thus it helps the governments in making better policies to help the producers to grow the economy at a faster pace.