Before inflation reaches consumers, it often shows up earlier in the supply chain. The Producer Price Index tracks the average change in selling prices received by domestic producers for their output. It covers goods like steel, chemicals, and food, as well as services like transportation and warehousing. Economists watch it as an early warning signal for consumer inflation.

The PPI is not a single number. It is a family of indexes, broken down by industry and product. A spike in the PPI for crude petroleum may show up months later in gasoline prices at the pump. A rise in the PPI for steel may signal higher costs for cars and appliances. The pass-through is not automatic, but the direction is usually clear.

The index has limitations. It measures prices received by producers, not what they pay for inputs, so it does not capture profit margins directly. It also excludes imports, which are a large part of input costs for many industries. The U.S. Bureau of Labor Statistics publishes it monthly, and traders react quickly to surprises. A higher-than-expected PPI reading can push bond yields up and stock prices down.

What PPI covers

• Commodities: crude oil, steel, grain
• Intermediate goods: parts and components
• Finished goods: machinery, furniture
• Services: trucking, warehousing, banking