There are many price indices for the US economy. Most people focus on the consumer price index (CPI) because it’s relevant to individual members of the economy. Another index, often misunderstood,* is the producer price index (PPI). In short, the CPI is what consumers pay and the PPI is what sellers receive.

You might think that what the producer gets would equal what the consumer pays, but our FRED graph above makes it clear that the CPI and PPI are different things.

1.  The difference between the two sets of prices includes shipping, taxes, retail costs, and retail margins. (The profit margin of the retailer acts like a cushion that absorbs some of the spikes and fluctuations in the PPI.)
2. The covered items are also different. The CPI includes consumer items such as rent, insurance, imports, and administrative fees that aren’t in the PPI. The PPI includes goods for export and goods not for household consumption, such as government purchases and investment by businesses, that aren’t in the CPI.
3. Finally, there’s a big category in the PPI that isn’t in the CPI: intermediate goods. These are sold to other business for further processing. In fact, the PPI allows us to make the distinction between final and intermediate demand; the latter can even be separated into the various stages of the production process, as shown in our FRED graph below.

How these graphs were created: First graph: Search FRED for “PPI.” Click on “Edit Graph,” open the “Add Line” tab, and search for and select “CPI.” Open the “Format” tab to select logarithmic scaling. (The period shown in the graph—CPI since 1947 and PPI since 1913—is so long that it makes sense to turn on the logarithmic scale so that similar percent increases early and late in the period appear similarly. Second graph: Go to the release table (find it in the notes of any of its series), check the series to display, and click on “Add to Graph.”   

*The PPI used to be called wholesale price index, but it incorporates all types of producer prices, so the name was changed.

Suggested by Christian Zimmermann.