Producer Price Index PPI
☀️PPI (Producer Price Index)
CPI (Consumer Price Index) measures the price changes consumers experience when purchasing goods. Unlike the CPI, the PPI measures the prices for producers at the factory gate or when sold directly.
The biggest difference between CPI and PPI is:
🍡PPI: Reflects cost pressures (raw materials, energy, labor, etc. rising costs → manufacturers may pass on to consumers).
🍡CPI: Reflects the actual price pressure felt by consumers.
☀️Does PPI being higher or lower than expected mean…?
The PPI and CPI in the United States are published once a month and are often used to predict inflation trends.
🍡PPI higher than expected:
Indicates that production cost pressures are greater than the market expects → Future CPI (consumer side) may rise accordingly → Inflationary pressure increases.
Market interpretation: Unfavorable (increasing inflation → money depreciates, people are unwilling to save → banks face tight funds → to stimulate savings → central bank is less likely to cut rates/increases the probability of rate hikes → capital flows from the market to banks).
🍡PPI lower than expected:
Production cost pressure is less than expected → Future inflation may slow down.
Market interpretation: Bullish market (slowing inflation → money is less likely to depreciate, people are willing to save → banks have ample funds → central bank interest expenses are high → avoiding large interest expenses, probability of central bank rate cuts increases → capital flows from banks to the market).
🍰Summary:
PPI high → Inflationary pressure ↑ → Rate hikes/postponed cuts → Tight capital → Crypto market is likely to fall 📉
PPI low → Inflationary pressure ↓ → Probability of interest rate cuts ↑ → Capital outflows → Crypto market is likely to rise 📈
Based on this August's PPI, the results were higher than expected, making crypto likely to fall.
In terms of importance, the PPI does not directly affect the Federal Reserve's decisions like the CPI does, but the PPI is positively correlated with the CPI, often allowing for speculation about the direction of the CPI!
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