Producer price index gets first overhaul since 1978

  • Article by: Shobhana Chandra
  • Bloomberg News
  • February 18, 2014 - 8:20 PM

– The producer price index has a whole new look. The first major overhaul of the gauge since 1978 more than doubles its reach and provides a more comprehensive view of U.S. inflation at the wholesale level.

The Labor Department’s revamped PPI debuts Wednesday and will include prices received for goods, services, government purchases, exports and construction, encompassing 75 percent of the economy. The old index reflected the costs of goods alone, representing about a third of all production.

Since services represent the biggest part of the economy, the gauge will offer a better look at inflation at the producer level and its scope will be similar to the government’s indexes of prices paid by American consumers. The introduction of services to the mix will also make the reading less volatile.

“Markets will pay more attention to the new PPI because we’re getting a much broader perspective than before,” said Dana Peterson, an economist at Citigroup Global Markets in New York. “It has the ability to give us an early indication on what we might expect for consumer inflation. The old PPI had lost its luster because it was missing a chunk of the economy.”

Goods will account for about 24 percent of the revamped gauge, while services — including financial services, food wholesalers and transportation providers — make up 63 percent. Prices received from government purchases and exported goods represent 11 percent, and construction is 2 percent.

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