Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Producer Price Index (IHP) The Producer Price Index (IHP) is an indicator that measures changes in the prices of goods and services at the producer level. The PPI calculates the price changes that occur for goods and services at the producer level, before these goods are delivered to the final consumer. PPI is used to predict changes in consumer prices in the future and also as a reference for companies to determine the selling price of their products. PPI is often used by governments, businesses and investors as a tool to measure inflation and make economic decisions related to prices and spending. The Producer Price Index (IHP) is an economic indicator that measures changes in the prices of goods and services at the producer level. This PPI records price changes that occur in goods and services from intermediary producers or producers before the goods are sold to final consumers. PPI can provide an overview of inflation trends at the producer level and their impact on the final selling price of products or services. PPI is often used to monitor inflation that occurs at the producer level, so that it can provide an early indication of price changes that may occur at the consumer level. PPI data is calculated by comparing the price of a product group at a certain time with prices in the previous period. The way this PPI is measured can vary depending on the country and agency that issued this indicator. However, PPI is generally calculated by collecting price data from producers and intermediary producers in a certain group of goods or services, and then comparing these prices with the previous period. After that, price changes are calculated in percentage form to determine relative price changes. Examples of products included in the WPI group are raw materials, semi-finished goods, finished goods, and services produced by intermediary producers or producers. The Producer Price Index (IHP) is an indicator that measures changes in prices of goods and services at the production stage, before they reach the hands of consumers. This indicator is often used to measure inflationary pressure from the producer or supplier side. The Producer Price Index is calculated based on changes in prices of goods and services produced by domestic companies, including goods sold abroad. The data for calculating the PPI was obtained from a price survey conducted by the Central Bureau of Statistics (BPS) for companies in various industrial sectors. The Producer Price Index is expressed as a percentage change in price over a certain period of time, for example per month or per year. An increase in PPI can indicate inflationary pressure from the producer side, which in turn can have an impact on the prices paid by consumers. For example, if the PPI increases by 5% in one month, it means that the average price of goods and services at the producer level has increased by 5% compared to the previous month. This can trigger an increase in the price of goods and services in the market, which can then have an impact on overall inflation. An example of using the Producer Price Index (IHP) is as follows: As a clothing manufacturer, company XYZ produces 10,000 shirts in January 2023. The production cost per unit is 50 USD and company XYZ sets a selling price for the clothes at 70 USD per unit. In February 2023, the price of raw materials to produce clothes went up and company XYZ had to pay 55 USD per unit. However, XYZ company decided not to increase the selling price of the clothes because it was worried that the high selling price would reduce market demand. In this case, company XYZ might use PPI to measure the impact of rising raw material prices on company profits. If the PPI shows that raw material price increases have accelerated since the previous month, then XYZ company may need to reevaluate their pricing strategy to avoid losses. Following are some of the characteristics of the Producer Price Index (IHP): 1. Measure changes in the price of goods and services produced by producers. 2. Includes the selling price of goods and services produced by producers at the producer or factory level. 3. It is measured using a price index, which is a comparison between the current price and a certain base price (usually the price in a certain year). 4. PPI data is usually calculated and published by government statistical agencies, such as the Central Bureau of Statistics (BPS) in Indonesia or the Bureau of Labor Statistics (BLS) in the United States. 5. PPI is often used to monitor inflation at the producer level, which can provide an indication of changes in production costs and their effect on the prices of consumer goods and services. Following are some of the characteristics of the Producer Price Index (IHP): 1. Cover a wide range of sectors: PPI covers a wide range of economic sectors and subsectors, such as agriculture, mining, manufacturing, energy and construction. Therefore, PPI can provide a fairly good picture of price changes throughout the economy. 2. Wholesale prices: PPI measures price changes at the wholesale level, i.e. the prices charged on goods sold from producers to wholesalers. Therefore, PPI provides an overview of price changes in the production sector before these goods are sold to the final consumer. 3. Frequency of publication: PPIs are published on a monthly basis by government statistical agencies, thus providing relatively quick information on price changes at the wholesale level. This allows market participants and economic decision makers to respond quickly to price changes. 4. Aggregated price index: PPI makes it possible to measure price changes across the economy in an aggregated manner through appropriate weighting for each sector and subsector. This makes it possible to track overall price changes over time and make comparisons between sectors and subsectors. 5. Inflation indicator: PPI is used as an inflation indicator because it measures price changes at the wholesale level. Although it does not directly affect consumers, changes in prices at the wholesale level can provide clues about price changes at the consumer level in the future. Therefore, PPI can assist in inflation policy planning by monetary authorities.