The Producer Price Index:

The Producer Price Index represents a family of indices that measures the average change in the selling prices received by domestic producers of goods and services over time. These prices are usually the basic prices. The basic price excludes GCT and all other taxes and subsidies on products sold. The prices are collected for a specified unit of measurement (litre, lb., kg.) of the good produced as output.

The Consumer Price Index

The Consumer Price Index measures changes in the general level of prices of consumer goods and services purchased by private households. It is the best economic instrument to use when determining the effect of changes in retail prices on the average household budget. The index numbers are also used to compare movements of prices geographical regions.

How does the PPI differ from the CPI?

The PPI and CPI measure price change over time for a fixed set of goods and services. However, they differ in two critical areas:-

The composition of the set of goods and services

The goods and services included in the PPI are the marketed output of domestic producers. The items included in the CPI are goods and services purchased for consumption purposes by households including inputs.

The types of prices collected

The price collected for an item included in the PPI is the price that the producer charges for goods and services. The price collected for an item in the CPI is the retail price that the consumer pays. (including taxes, transportation costs, etc.)