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Producer Price Index - Assignment Example

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"Producer Price Index" paper focuses on the price indices used for measuring inflation in an economy. Also known as the wholesale price index. PPI helps the manufacturers to keep a track of the changes in the sale prices or rather value additions along with the production in the process. …
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Producer Price Index
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Download file to see previous pages The index could well be considered as the one estimating the price of the basket of all intermediate products and raw materials being used in production. In other words, PPI includes the prices of all those items omitted from the calculation of the Consumer Price Index. The index is measured every month, including the prices of manufacturing items according to their contribution to the nation’s GDP.

Apart from updating the producers, the importance of PPI lies in helping the observers to predict the upcoming CPI index and hence measure the expected inflation value. Also, it also assists them to seek out the exact channels which have contributed to any inflation at the retail level. Since PPI figures out the changes in prices of raw materials and intermediate goods, it helps the economists to analyze the exact avenues that might have led to any abnormality in price, i.e., whether it is caused by a shift in the demand-supply schedule or any other exogenous factor (Yamarone, 2007).

The purpose of both the Producer Price Index and Consumer Price Index is to measure the rate of inflation in any given economy. However, the perspectives or the dimensions that each of them covers are different from each other in the sense that each of them considers a different sub-set of all the goods that an economy produces. The producer price index, also known as the Wholesale Price Index, calculates the average price level of the raw materials and intermediate goods being used during the production process. On the other hand, CPI is all about the retail prices of the final goods sold in the market. Hence, while the former is meant for the manufacturers in the nation, the consumers are more concerned about the PPI. A detailed distinction between the two measures has been presented in the following paragraph.

The consumer price index is measured for a given basket of consumer goods in an economy. It is calculated by the government of any nation by considering the average expenses being incurred by an average household in the economy.  ...Download file to see next pagesRead More
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