 Hello, and welcome to another episode of the Minor Issues Podcast. I'm Mark Thornton at the Mises Institute. In this episode, I want to talk about the producer price index, or the PPI. It looks at the prices of a much larger expanse of prices of goods in the economy that producers buy, and it doesn't really get much discussion in the media. So we're not talking about the consumer price index, the CPI, which is reported and talked about extensively, especially with respect to Fed policy and politics. And that's a measure of a basket of consumer goods like eggs, milk, and bread that you buy at the grocery store, or gasoline that you buy at the gas station. PPI measures a predetermined basket of prices of goods that producers buy and sell up and down the entire structure of production, everything really but final consumer good prices. So think about rubber, not tires, leather, not shoes, cotton, not cloth, wheat, and not bread. It does not include wage rates, which is reported elsewhere, except to the extent that wages are an important component of producer goods. I mean, after all, you need labor to do farming, mining, forging, manufacturing, processing, research, warehousing, transportation, et cetera. There are about 10,000 different little PPIs out there for individual products and groups of products that are released each month and that are available for nearly all industries in the goods producing sector, such as mining, manufacturing, agriculture, fishing, forestry, energy, construction. All those various areas have their own little PPI index, which covers, you know, the vast majority of the economy. The PPI is generally ignored by the media and may only get a mention in the business press. PPI is most often ignored by economists as well. Something after all in the Fed's mind is CPI, and everybody follows along with that. So why bother in this podcast to cover it? As you're going to see, the PPI tells us a lot more about what's going on in the actual economy and actual industries than CPI ever will. And does PPI predict CPI? Well, not really. Not precisely. They follow different paths, but there is a connection. For example, if consumers drive up a particular consumer good price, then producer goods in that industry will also follow. So if Americans adopt the keto diet, then all things, beef, are going to rise. The price of feed, the price of cattle, the price of land, et cetera. And consumer good prices driven by the consumer is the norm. However, the government can also make it much harder to produce in a particular industry with regulations, taxes, subsidies to other goods, COVID lockdowns, et cetera. So then the higher cost as a result of government intervention will result in higher producer good prices. But producer good prices are a primary shock absorbing measure in the macro economy and macro economic instability. So if the government causes a boom or a depression in the economy, it's going to be felt first and foremost in the producer goods industry, whereas consumer goods are more stable. The PPI is also much more variable due to a variety of other factors. For example, peanuts and peanut butter really matter to peanut butter prices, but the salt in peanut butter does not. So this tells us a great deal about the elasticity or the rate of change in product markets. Producer goods are also very often sold in much bigger marketplaces, so international conditions also impact those prices. Now as a general historical thumbnail sketch, until the early 1970s, the PPI and the CPI were relatively flat, and that was the period when we were on the Brenton Woods gold standard. But from then on CPI has been on a trend line that is much steeper upward over time, whereas PPI has been less steep in its trend line. But it is within those trends or moving averages over time. There's a much more erratic behavior of PPI. This is reflective of the business cycle, the global business cycle, as well as the rise of service industries and the relative cost or use of labor in the prices of the ultimate things that we pay for. During the housing bubble decade, the PPI did a massive catch up to CPI. After the crash of the housing bubble, we saw PPI drop precipitously after the fact where CPI continued upwards. Between the peak housing bubble year of 2008 and the COVID crisis of 2020, the producer price index was somewhat erratic, but its trend was flat, while CPI stayed on its upward trend. Most importantly, since COVID, the COVID crisis, CPI rose 14.6% from the trough to the peak, which I measure in June of 2022, and then has since advanced another 3.3%. That's what you're paying out there in the economy. But meanwhile, PPI advanced almost 50% from the trough to the peak, again in June of 2022. So there was a massive increase in producer prices as a result of COVID, and since then it has only declined by about 10%. So there was a big increase, a bubble sort of in CPI prices that has continued to increase over time, but with PPI, the increase was much more massive, and that was the result of the impact of inflation, and of course, all of the supply side problems and restrictions from COVID itself. And since then, the decline has been relatively modest, and that modest decline worries me that we're not really making the corrections that the Austrian business cycle tells us that is really necessary. And when you look at the individual PPI's in various industries, you see a differential effect so that sheets of steel have corrected a great deal, but things like producer food prices rose significantly and then have been flat ever since. They really haven't corrected at all. The same is true in the drug industry, the cement industry, and then in many other industries there's been that relatively typical correction in line with the 50% increase during the COVID inflationary bubble, and then there's been a slight decrease in those indexes. So this is something we want to keep an eye on and that we will keep an eye on here, but again, is something that is not really discussed in the media or by economists, but it is important here at the Minor Issues Podcast.