Glossary
Producer Price Index (PPI)
The Producer Price Index measures the average change over time in the selling prices domestic producers receive for their output. It is the index most business-to-business escalation clauses use, because it tracks wholesale input costs rather than retail prices.
Also called: PPI, wholesale price index, producer prices.
The US Bureau of Labor Statistics publishes thousands of PPI series, from
broad aggregates down to narrow commodities like cold-rolled steel sheet
or carbon black. Each has a code. A clause that says "the steel PPI" names
nothing usable; a clause that says series WPU101707 names one series both
sides can look up.
PPI suits supply and construction contracts because the buyer's cost
pressure is a producer's price, not a shopper's. For labor-heavy scopes,
the Employment Cost Index fits better, and for
consumer-facing or rent-linked terms the
Consumer Price Index is more common.
Use the not-seasonally-adjusted version of a PPI series in a contract; see
not seasonally adjusted.
See CPI vs PPI for price adjustment
and WPU vs PCU series.
Related terms
Publication lag is the gap between the month an index measures and the date the statistical agency releases that value. A clause has to say whether it uses the preliminary figure available at adjustment time or waits for the final, revised one.
The reference period is the year a statistical agency sets an index equal to 100, so all other values read as a percentage of it. It is a property of the index itself, not of any contract, and it is not the same as a clause's base period.
A successor series is the index a clause switches to when its named series is discontinued or restructured by the statistical agency. A well-drafted clause names the successor, or a method for choosing one, in advance.
A true-up is a later correction to a price adjustment that was calculated from a preliminary index value, once the final revised value is published. The difference is billed or credited in a subsequent invoice.
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