The Producer Price Index for the electricity sector in the year ending Dec. 21, 2018, increased by 0.79% compared with the same period of last year, latest data released by the Statistical Center of Iran showed.
The sector’s PPI for the year ending Sept. 22 (end of second quarter) had decreased by 3.65%.
The importance of PPI lies in its predictive content for the future pattern of Consumer Price Index. Changes in PPI are usually reflected in CPI within a short period of time, Financial Tribune reported.
PPI gauges the price fluctuations of goods and services for the producer whereas CPI measures changes in the price level of a basket of consumer goods and services purchased by households.
In other words, PPI is an index of prices measured at the wholesale, or producer level. It shows trends within the wholesale markets (and was consequently called the Wholesale Price Index), production industries and manufacturing industries and commodities markets from the perspective of the seller.
According to Investopedia, PPI can serve multiple roles in improving investment-making decisions because it can serve as a leading indicator of CPI.
When producers are faced with input inflation, those rising costs are passed along to the retailers and eventually to consumers.
Furthermore, PPI presents the inflation picture from a different perspective than CPI. Although changes in consumer prices are important for consumers, tracking PPI allows one to determine the cause of the changes in CPI.
If, for example, CPI increases at a much faster rate than PPI, such a situation could indicate that factors other than inflation may be causing retailers to increase their prices.
However, if CPI and PPI increase in tandem, retailers may be simply attempting to maintain their operating margins.
All in all, a decrease in PPI is one of the signs of a probable slowdown in CPI in future months. Almost a perfect correlation exists between CPI and PPI.