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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
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Producer Price Index |
Consumer Price Index |
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It is an estimate of average price changes that the producer receives. |
It measures the price changes that the consumer pays to the retailer. |
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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
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Producer Price Index |
Wholesale Price Index |
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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. |
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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. |
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It gives a clear picture of inflation in an economy. |
It does not reflect inflation in an economy. |
