- PPI is Producer Price Index.
- PPI comes out the second week of each month.
- Forex traders can use PPI as leading indicator to forecast the Consumer Price Index (CPI) value
In the 50’s gasoline was $0.27, apartment rent was $42/month and a
movie ticket was $0.48. In addition, the US dollar was worth 9 times
what is worth now.
Inflation reduces domestic buying power and that is
why central banks fight so hard to beat back inflation by raising the
interest rate. Forex traders are well aware that interest rates are the
main driver of currency movement. Investors seek higher yields and will
migrate capital from low yielding assets and currencies to high yielding
assets and currencies.
This is why traders pay special attention to the
Producer Price Index because it alerts them to the rise and fall of
inflation which could, in turn, lead to a rise and fall of currency
rates.
What is PPI?
The Producer Price
Index (PPI) is an indicator used to measure the average change in
selling price received for finished goods. Retailers that
have to pay more for finished goods may have to pass on higher costs to
consumers. This measurement of price change from the view of the seller
can be a leading indicator for consumer inflation that is measured by
the Consumer Price Index (CPI). PPI examines three production areas:
- commodity-based,
- industrial-based,
- and stage-of-processing-based
companies.
It is released by the Bureau of Labor Statistics, PPI is created
using data collected from a mailed survey of retailers selected
randomly.
Traders can see changes in PPI expressed in a percentage change from the previous year or month to month using Metatrader 5 Economic Calendar feature:
Why Look at PPI?
Forex traders use the Producer Price Index to find the direction of
prices and a measurement of inflation. Rising prices in the form of
inflation lowers the purchasing power of a country’s currency because
consumers can buy less goods and services for each unit of currency.
This decrease in consumer buying power usually triggers a central bank
response to raise interest rates. A rising PPI could indicate that
consumer prices could rise leading to higher interest rates.
