PPI, CPI Inflations Move Inversely

Financial Tribune – The average Producer Price Index in the 12 months ending Sept. 22, which marks the end of the sixth Iranian month (Shahrivar), increased by 8.2% compared with last year’s corresponding period, the latest report by the Central Bank of Iran announced. The CBI’s website put the preceding month’s PPI inflation at 7.6%.

A year-on-year increase of 10.7% was registered in the index compared with the similar month of last year. The PPI (using Iranian year to March 2012) stood at 247.3 in Shahrivar, indicating a 1.4% rise compared with the previous month.

The PPI inflation has been on the rise since October last year. The index in the 12-month period ending Oct. 22 increased by 3.2% compared with last year’s corresponding figure. Ever since, it took on an upward trajectory.

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 (as it was once called the Wholesale Price Index), production industries and manufacturing industries and commodities markets from the perspective of the seller.

When producers are faced with input inflation, those rising costs are passed along to the retailers and eventually to the consumer.

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.