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Producer and Consumer Prices
During the second or third week of every month, the Bureau of Labor Statistics, a division of the U.S. Labor Department, issues monthly data on the Producer Price Index (PPI) and the companion Consumer Price Index (CPI). These reports, which measure inflation at different points, are issued on separate days, often, but not always, within a day or two of one another. Typically, but not always, the Producer Price Index report will precede the Consumer Price Index survey by one day. The data are issued at 8:30AM Eastern Standard or Eastern Daylight Savings time, thus giving the financial markets, which can react--or overreact--to such data an hour to examine the figures and take the appropriate action. As with most other economic series, these indexes can, and often are, revised the following month, underscoring the futility and counterproductive nature of overreactions.
The Producer Price Index: This gauge of inflation, which had been called the Wholesale Price Index until 1978, measures average changes in selling prices received by domestic producers of goods and services over time. The PPI chronicles three stages of production, crude goods, intermediate goods, and finished goods. Included within this key index is an aggregate number, which measures all components of the index, and a so-called core inflation number, which strips out the historically volatile food and energy components. The data are presented both ways. Reactions can vary, although sharp surprises in the core rate of the PPI often get more significant reactions, because this figure is normally harder to reverse. The changes are presented in percentage form, The PPI is one of the oldest continuous systems of statistical data published by the Bureau of Labor Statistics, as well as one of the oldest economic time series compiled by the Federal Government.
The Consumer Price Index: This gauge of inflation at the retail level, often termed the CPI, is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation (including the price of used cars and trucks), food, energy products and services, shelter, and medical care. Changes in CPI are used to assess pricing associated with the cost of living. It is a more stable index than the PPI. Like the latter, data are issued both in the aggregate and at the so-called core level, which excludes food and energy. Changes are listed in percentages.
Data for both the PPI and the CPI are used by the U.S. Federal Reserve Board, which is charged with keeping both inflation and unemployment low, with ammunition to either raise or lower short-term interest rates. Of course, other economic gauges affect the Fed’s decisions, including industrial production, changes in payrolls, housing statistics, and retail activity. However, few items are more critical than these inflation gauges in influencing the central bank.