What is a Producer Price Index?
Producer prices are the prices at which businesses sell their products or services to others (for example, the government, consumers or other businesses).
Producer Price Indexes (PPI) track the average change in prices Canadian producers receive or pay for goods, housing and services over time.
There are many producer price indexes, covering a wide range of economic activities, such as manufacturing, construction, professional services, distributive trades and financial services.
Statistics Canada publishes producer price data that can be used for many things including:
- Financial planning, contract escalation and budgeting
- Identifying sources of inflation in the economy and monitor economic trend
- Calculating the Gross Domestic Product (GDP) – a measure of growth of the economy over time
How are Producer Price Indexes used?
There are two main uses for producer price indexes. One is to adjust business or government contracts to inflation. The other is to calculate the real value of economic output by adjusting for price changes. In other words, price indexes are used to measure real gross domestic product (GDP). This is why there are many producer price indexes, covering a wide range of economic activities, such as manufacturing, construction, professional services, distributive trades and financial services.
Why are Producer Price Indexes important?
Producer Price Indexes help identify sources of inflation in the economy and monitor economic trends, distinguish between pure price change and change due to a difference in quality or volume and help businesses with financial planning, contracting and budgeting.
How are Producer Price Indexes data collected?
Businesses in different sectors of the economy and various stages of the supply chain are selected for price surveys. The surveys collect prices for a selection of goods or services on a monthly, quarterly or annual basis.
Some prices are also collected from other sources, such as administrative files, websites and other Statistics Canada survey programs.
How are Producer Price Indexes calculated?
Indexes have many layers and components.
To build an index, we need to identify a basket of goods and services that businesses in Canada might sell. We do this because it's impossible to capture the prices of every good and service a business produces. Instead, we track the selling prices of their most representative goods and services over time. To measure pure price change, it is important to keep the contents of the basket fixed over time. The basket differs depending on which part of the value chain is being measured. For example, the For-hire Motor Carrier Freight Services Price Index's basket contains the type of shipment and route travelled, whereas the basket for a residential building construction price index contains components such as building materials, labour and overhead.
Each item in the basket receives a relative importance, or basket weight, that represents its share in the total value of all goods or services in that particular sector of the economy. For example, motorized and recreational vehicles represent a larger share of the total value than meat, fish and dairy products; therefore, motorized and recreational vehicles receive a larger weight than meat, fish and dairy products in the Industrial Product Price Index basket.
Basket contents and their weights represent the production patterns of Canadian businesses, which change over time. For example, years ago manufacturers produced cars with cassette players. Today, they produce cars with Bluetooth or even electric cars. Updating the basket regularly ensures that the index remains representative of the range of goods and services produced in Canada.
How do Producer Price Indexes differ from the Consumer Price Index?
Producer Price Indexes (PPI) track the average change in prices Canadian producers receive or pay for goods, housing and services over time. The Consumer Price Index (CPI) tracks changes in prices as experienced by Canadian consumers by comparing, through time, the cost of a fixed basket of goods and services.
Why are Producer Price surveys mandatory?
Canadians need accurate and reliable information-the cornerstone for democratic decision making. Through the Statistics Act, Parliament has mandated Statistics Canada, as the national statistical agency, to produce such information.
Business surveys collect important economic information that is used by businesses, unions, non-profit organizations and all levels of government to make informed decisions in many areas.
Because most business surveys feed directly or indirectly into legally mandated programs, mandatory participation is required to ensure an adequate response rate as well as reliable results.
Where can I get more information on Producer Price Indexes?
For the latest releases of the Producer Price Indexes please visit The Daily.
The video "Producer Price Indexes" is available on the Statistics Canada Training Institute webpage. It provides an introduction to Statistics Canada's Producer Price Indexes-what they are, how they are made and what they are used for.
The research paper "A Historical Timeline of Canadian Producer Price Statistics," part of the Prices Analytical Series (Catalogue number 62F0014M), was created to showcase the key milestones in the history of Canadian producer price statistics. This historical timeline contains answers to questions such as: Who collected Canada's first statistics? What do Canadian producer price indexes measure?
The infographic "Producer Price Indexes at a Glance," part of the series Statistics Canada - Infographics (Catalogue number 11-627-M), demonstrates how producer price indexes for goods and services are calculated and why they are important for the Canadian economy.