The U.S. Producer Price Index measures the change in the price of goods sold by manufacturers. The PPI is one of the key indicators that help to estimate the inflation. The latter has a direct influence on the exchange rate of the national currency.
Why is it important?
The PPI is important because the indicator’s main purpose, as mentioned above, is to estimate the inflation.
A relatively high inflation in the United States would mean that American goods become more expensive when compared to goods manufactured in other countries. Higher prices lower the demand for American goods, which apparently leads to lower US exports. American consumers, in turn, will spend more on import products due to relatively lower prices. The USD supply will therefore increase, lowering the exchange rate even further.
As demonstrated in the example above, high inflation influences the exchange rate of the national currency in the negative way.
PPI and trading
A higher than expected reading should be taken as bearish for the USD, while a lower than expected reading should be taken as bullish for the USD.
The United States Producer Prices
The United States Producer Prices Index last reading for the month of June 2017, was 112.8, up from the previous reading of 112.7. For 2017 the PPI Index is rising and has a long-term average reading of 180.06 for the period of years 2009-2017. The all=time high reading for the PPI Index was 112.80 in June of 2017, and the all-time low reading was 100.20 in November of 2009.
