The Producer Price Index:
The Producer Price Index represents a family of indices that measures the
average change in the selling prices received by
domestic producers of goods and services
These prices are usually the basic prices. The basic price excludes GCT and all
other taxes and subsidies on products sold. The prices are collected for a
specified unit of measurement (litre, lb., kg.) of the good produced as output.
The Consumer Price Index
The Consumer Price Index measures changes in the general level of prices
of consumer goods and services purchased by private households. It is the
best economic instrument to use when determining the effect of changes in retail
prices on the average household budget.
The index numbers are also used to compare movements of prices geographical regions.
How does the PPI differ from the CPI?
The PPI and CPI measure price change over time for a fixed set of goods
and services. However, they differ in two critical areas:-
The composition of the set of goods and services
The goods and services included in the PPI are the marketed
output of domestic producers. The items included in the CPI are goods and
services purchased for consumption purposes by households including inputs.
The types of prices collected
The price collected for an item included in the PPI is the
price that the producer charges for goods and services. The price collected for
an item in the CPI is the retail price that the consumer pays. (including taxes,
transportation costs, etc.)