Can somebody explain me how the PPI works?


My understanding of the PPI is that it represents the change in prices paid by the producers for the goods / services they buy. So the way I see it is like the CPI for the producers. I find however confusing what I read in the BLS Handbook Of Methods. Specifically:

  1. On the Industry based PPI I read: “A producer price index for an industry is a measure of changes in prices received for the industry’s output sold outside the industry“. So, if we look for example at the PPI By Industry for Manufacturing, is this the prices manufacturers sold their goods at outside of the Manufacturing industry? My initial understanding was that the PPI showed the prices paid by the producers, so I thought the PPI for Manufacturing showed the increase of the prices they paid and not the increases of prices they sold at.
  2. On the FD-ID based PPI, I read: “The final-demand portion of the FD–ID structure measures price change for commodities sold as personal consumption, as capital investment, to government, and as exports. […] The final-demand goods price index measures price change for both unprocessed and processed goods sold to final demand. Fresh fruits sold to consumers and computers sold as capital investment are examples of transactions included in this index.” So, if we take as an example the PPI for Fresh Fruits, does that represent the price paid by the seller of the fruits when he bought them, or does represent the price the final consumer paid? If the former is correct, I understood, if the latter is correct, shouldn't that purchase fall under the CPI?

Thanks in advance.


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