Producer Price Index

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Introduction

It is the average change in the price of goods and services at the place of production before they reach the market.
It reflects the change in average prices that a producer receives.
PPI estimates exclude indirect taxes, transportation and distribution costs.

Significance of PPP

PPP is used as a measure of inflation and deflation.
PPP is to calculate escalator clauses in private contracts based on the prices of key inputs.

An escalator clause is a contract provision that allows for an automatic increase in the agreed-upon wages or prices if certain conditions change while the contract is in effect.

It acts as a comparison of input and output costs.

Producer Price Index Vs. Consumer Price Index

Producer Price Index	Consumer Price Index
It is an estimate of average price changes that the producer receives.	It measures the price changes that the consumer pays to the retailer.
It reflects the average price changes of intermediate goods also.	It reflects the average price changes of final goods.

Producer Price Index Vs. Wholesale Price Index

Producer Price Index	Wholesale Price Index
It measures the average price change received by the producer excluding the indirect taxes.	It represents the price change of a basket of goods and includes some taxes levied. The distribution costs are also considered in WPI.
It reflects the price changes in both goods and services.	It does not reflect the price changes in services. The Wholesale Price Index counts goods only.
It gives a clear picture of inflation in an economy.	It does not reflect inflation in an economy.