The best economic indicator to predict inflation

Fsp Invest, 05 Dec. 2013

Tags: inflation, ppi, producer price index, using ppi to predict inflation



Inflation is the average change in prices for a basket of goods and services and is one of the most anticipated indicators of the year.
Because high levels of inflation are very bad for the overall health of the economy.
You see, runaway inflation will reduce the purchasing power of your savings!
And when inflation goes up, market returns tend to go down.
So that’s why it’s very important for investors to be able to predict the future rates of inflation…
Because the rate of inflation will decide how they make investment decisions going forward. But how do you predict inflation?


 
The economic indicator to use to spot inflation
The economic indicator you want to use is the Producer Price Index (PPI). 
 
The PPI is a family of indexes that measure the average change in selling prices received by domestic producers of goods and services over time.
 
It measures the change in prices from the perspective of the producer… 
 
Which is why the PPI is good at showing cost pressures across different industries. 
 
Because, simply put, the monthly PPI can show if the prices of raw materials are rising!
 
Economists do complex calculations on PPI data to determine if it is inflationary. 
 
But as a general rule: 
 
If prices seem to be rising, it means the purchasing power of your money is decreasing!
 
This is why a rising PPI is one way an investor can spot rising inflation. 
 
Use PPI in conjunction with other indicators. 

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