PPI / Core PPI
PPI is one of the reports that can indicate the inflation rate and help calculate or analyze the economic outlook of the United States. The Federal Reserve, or the U.S. central bank, is the one that releases this index. There is also a similar report called Core PPI. So, what exactly are PPI and Core PPI, and how do they differ? Today, I will dive deep and explain them in a simple way, so you’ll definitely understand after reading.
What are PPI and Core PPI?
-PPI stands for Producer Price Index.
-Core PPI stands for Core Producer Price Index.
These are indexes that measure the selling prices from the producers. They track changes in the prices of goods and services sold by producers. To illustrate, imagine you run a bicycle manufacturing company. You need to buy parts like steel, rubber, and aluminum. You also pay for labor and factory rent to keep production going. Suppose at the beginning of the year, your production costs increase due to higher demand, transportation disruptions between companies, or government policies. This raises your production costs, so you decide to raise the bicycle prices to maintain your profit margin. You then sell the bicycles to stores at a higher price. Analysts calculate the PPI or Core PPI by collecting the prices of production and output to reflect these changes.
What is the difference between PPI and Core PPI?
-PPI, or Producer Price Index, measures the changes in prices of production materials and services.
-Core PPI, or Core Producer Price Index, measures the changes in prices of production materials and services excluding food and energy products.
Does it have an impact on gold?
PPI does not directly impact gold as much as other news, but it indicates the inflationary pressure on producers. Changes in the PPI index reflect inflation trends of the currency, which indirectly affect gold and oil prices as well.
PPI and Traders
For traders, they often use the index numbers from the news to make predictions both before and after the announcement. If the announced numbers come out better than expected, it will be positive for the major currency, the USD dollar. These two reports are announced together as follows:
- PPI Core
- PPI
Sometimes, these reports are released along with other news, such as Core Retail Sales m/m and Retail Sales m/m. To predict which way the chart will move, you need to consider the combined impact of all the news released together.
Ultimately, if the numbers are too high, it results in higher inflation, which affects the central bank’s decisions on monetary policy and may lead to an increase in interest rates. Conversely, if the numbers come out too low, it indicates a possible decrease in interest rates as well.
