The Producer Price Index(PPI) is an index that is used to calculate inflation from the viewpoint of industry and business. Today we will be discussing more in detail the producer price index(PPI), and how it is calculated.
There are two types of Producer Price Index, they output PPI is used when the goods leave the production place. Input PPI is used when the goods enter the production process. PPI tracks price changes for goods and services sold to final and intermediate demand. The Final demand is the demand satisfied by consumption and intermediate demand is the demand generated during the manufacturing process. The PPI is regarded as a neutral tool for adjusting prices in long-term purchasing contracts.
How PPI is calculated?
The fundamental formula of PPI is PPI= Current Price of basket/Base price of the basket. Basket is the relative weight of goods and services in the current period. The producer price index tracks changes in the production process and it is published by the Bureau of Labour Statistics for nearly 10000 individual products and product groups every month. But PPI is currently not in use in India.
The advantages of PPI will reveal all production costs, including hidden costs such as taxes, shipping charges, and others. It has international equivalence and it also helps in demonstrating the economy’s efficiency in transferring goods and services from one level of operation to another.
The PPI was known as the Wholesale Price Index(WPI) up to 1978, and it is one of the oldest continuous systems of statistical data. The biggest advantage of the PPI is for investors and it helps to forecast the consumer price index and it is a good inflation detector in any economy.
So this is all about the Producer Price Index being published confidentially and it predicts the price changes before consumers purchase final goods and services. As of now, India isn’t using PPI. But Niti Aayog has been created to introduce it soon.
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Tag:Base Price, Economics, IAS, IFS, India, IPS, IRS, PPI, Producer Price Index, UPSC, WholeSale Price, WPI