Producer price index

A producer price index (PPI) is a price index that measures the average changes in prices received by domestic producers for their output. Formerly known as the wholesale price index between 1902 and 1978, the index is made up of over 16,000 establishments providing approximately 64,000 price quotations that the U.S. Bureau of Labor Statistics (BLS) compiles each month to represent thousands of different goods and services.

Its importance is being reduced by the steady decline in manufactured goods as a share of spending. When manufacturers face increased production costs (input costs), businesses must reconsider their pricing approach by either:

1. Absorbing higher manufacturing costs, which may maintain customer satisfaction but can impact the company's profitability.
2. Transferring those costs to consumers, which may boost business profits, but means customers will face higher prices for the goods and services.