Used as indices which delineate price changes, the consumer price index, CPI, and producer price index, PPI, both elucidate price changes given a fixed set of goods and services. Specifically, the former calculates price changes from the lense of a consumer taking into account factors such as taxes. While the latter, conversely analyzes change from the viewpoint of domestic producers. Overall, the two are alike due to the fact that they use price changes to signal price disparity although they represent different aspects of the economy. According to the United States Department of Labor’s Bureau of Labor Statistics (BLS), the consumer price index is “measure of the average change over time in the prices paid by urban consumers for a market
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The PPI uses a modified Laspeyres index amidst its calculations to compare revenue and create a weighted average change. accordance with the previously mentioned BLS’s website, the PPI uses all the output from domestic producers and the price is within the index is the revenue that the producer receives. The prices used are collected on one specific day of the month. This not only includes goods and services bought directly from the producer but from retail sellers as well. Additionally, the PPI includes exports opposed to imports in its calculations. The reason being, given the scope of the PPI, the revenue streams of domestic producers are most directly impacted by exports due to international markets and imports are not domestically produced. However, said index does not account for factors such as owner’s equivalent rent or taxes, as it is based around the domestic producer’s revenue and this factor is not considered to be a marketable output. Furthermore, it does consider factors not in the CPI such as government purchases, as these add to the revenue of producers, and services not directly paid by the consumer such as medical services from the government. As aforementioned, the PPI does account for the interest rate component of services such as those found in the banking industry. Finally, while the CPI has a complete coverage of services the PPI does not. The latter is relatively new in its coverage of many sectors and the CPI houses many services which cannot be found within the PPI currently. Only in 1980 did the PPI begin to expand outside of the mining, manufacturing, agriculture, and utility service industries. The PPI delineates the real growth or lack thereof in revenue for domestic producers by adjusting for inflation. Further, it is regarded as a true measure of output as it is not affected by consumer demand, as according to the article “What is
The PPI uses a modified Laspeyres index amidst its calculations to compare revenue and create a weighted average change. accordance with the previously mentioned BLS’s website, the PPI uses all the output from domestic producers and the price is within the index is the revenue that the producer receives. The prices used are collected on one specific day of the month. This not only includes goods and services bought directly from the producer but from retail sellers as well. Additionally, the PPI includes exports opposed to imports in its calculations. The reason being, given the scope of the PPI, the revenue streams of domestic producers are most directly impacted by exports due to international markets and imports are not domestically produced. However, said index does not account for factors such as owner’s equivalent rent or taxes, as it is based around the domestic producer’s revenue and this factor is not considered to be a marketable output. Furthermore, it does consider factors not in the CPI such as government purchases, as these add to the revenue of producers, and services not directly paid by the consumer such as medical services from the government. As aforementioned, the PPI does account for the interest rate component of services such as those found in the banking industry. Finally, while the CPI has a complete coverage of services the PPI does not. The latter is relatively new in its coverage of many sectors and the CPI houses many services which cannot be found within the PPI currently. Only in 1980 did the PPI begin to expand outside of the mining, manufacturing, agriculture, and utility service industries. The PPI delineates the real growth or lack thereof in revenue for domestic producers by adjusting for inflation. Further, it is regarded as a true measure of output as it is not affected by consumer demand, as according to the article “What is