How It Works
The producer price index consists of a weighted index of goods prices at wholesale. PPI is divided into three levels. The first is the PPI commodity Index, which shows the average price change over a certain time period (usually a month) for commodities like crude oil and coal.
The second level is the PPI stage of processing (SOP), which consists of goods that are in a manufacture stage between raw and finished, and will be sold to other manufacturers to create the finished goods. Examples include cotton, gasoline and steel.
The third and final PPI level consists of finished goods. That is, they have undergone their final stage of manufacturing and will be sold to consumers. The finished goods level is the source of the core PPI.
Core PPI is the primary economic indicator. [InvestingAnswers Feature: Leading Economic Indicators Cheat Sheet] Core PPI is a price index for finished goods except those in the food and energy sectors because of their high price volatility.
