Frequently Asked Questions (FAQs)

Question: How are Producer Price Indexes (PPI) used?

Answer: PPI data are widely used by the business community as well as government.

Three major uses are:

As an economic indicator: The PPIs capture price movements prior to the retail level. Therefore, they may foreshadow subsequent price changes for businesses and consumers. The President, Congress, and the Federal Reserve employ these data in formulating fiscal and monetary policies.

As a deflator of other economic series: PPIs are used to adjust other economic time series for price changes and to translate those series into inflation-free dollars. For example, constant-dollar gross domestic product data are estimated using deflators based on PPI data.

As the basis for contract escalation.: PPI data are commonly used in escalating purchase and sales contracts. These contracts typically specify dollar amounts to be paid at some point in the future. It is often desirable to include an escalation clause that accounts for increases in input prices. For example, a long-term contract for bread may be escalated for changes in wheat prices by applying the percent change in the PPI for wheat to the contracted price for bread. For more information on contract escalation and PPIs, see Escalation Guide for Contracting Parties.