Producer Price Index

The producer price index tracks changes in the prices companies charge when goods leave the factory — not what consumers pay, but what producers receive.

It tends to move before the consumer price index. Rising raw material and component costs show up in producer prices first, then pass through to consumer prices with a lag, making it a leading signal.

The pass-through is not automatic, though. Where competition is fierce or demand weak, companies absorb higher costs by accepting thinner margins, so producer prices rise while consumer prices stay calm.

That makes the index useful for gauging corporate margins. Producer prices rising faster than consumer prices means margins are being squeezed by exactly that gap.

Breaking the release down by stage is useful too. It separates raw materials, intermediate goods and finished goods, showing how far through the production chain price pressure has travelled. Bear in mind that it swings more than the consumer index, though. Direct exposure to raw material prices makes a single month's figure a poor basis for calling the direction.