The broadest measure of inflation in the economy is GDP-Based Price Indices. It is part of the quarterly Gross Domestic Product (GDP) report representing quarter-to-quarter percent change in weighted price indices for the various components of GDP, for the ratio of nominal (current-dollar) GDP to real (inflation-adjusted) GDP and gross domestic purchases (excludes exports).
The Producer Price Index (PPI) measures the average level of prices of a fixed basket of goods received in primary markets by producers. The monthly reports of this index indicate commodity inflation. The PPI is widely followed because it accounts for price trends throughout the manufacturing sector.
The PPI is popular but leaves out the food and energy components. These items are usually much more changeable than the rest of the PPI and can therefore obscure the more important underlying trend.
Studying the PPI allows consideration of inflationary pressures that may be receding or accumulating, but the index has still to be improved.
A rising PPI is normally expected to cause higher consumer price inflation and therefore to potentially increase short-term interest rates. Higher rates will often have a short-term positive affect on a currency, however outstanding inflationary pressure will often weaken the confidence in the currency.
