With the producer-price index (PPI) falling nearly a half a percentage point in July, Americans could see an ease on the prices they pay for their goods and services.
The PPI calculates the “average change over time in the selling prices received by domestic producers for their output.” In layman’s terms, PPI measures what companies are paying other companies for goods and services. Why it matters that PPI has fallen is that this measure is a fairly good predictor of price changes to come.
While changes in the PPI do not systematically predict changes in consumer prices, the Federal Reserve notes changes in the PPI “sometimes help predict CPI (consumer price index) changes.”
The theory goes that if companies are paying more for their outputs, then they must offset the higher cost of production by raising prices for their goods and services.
From January to August of this year, producer prices are down 0.2 percent. Prices for final goods fell by 0.4 percent and prices for services fell by 0.3 percent, reports the Bureau of Labor Statistics.
Sales have risen some 2.3 percent since August of last year, reports Reuters.
The economy created around 547,000 jobs in June and July. With this increase in new jobs and sales rising, if consumer prices fall with the PPI, we may see a bolstering of our economy.
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