PPI Provides Glimpse of Potential Inflation Impacting Infrastructure Projects

News about increasing prices seem to be everywhere. When we hear about inflation in the news, we often see the Consumer Price Index (CPI). This is the measure that tracks the prices we see at the grocery store, gas pump, etc. Another significant measure is the Producer Price Index (PPI). The PPI tracks the prices that manufacturers see before it becomes the finished product and hits the store shelves, including transportation and warehousing. Because of where it is in the supply chain, the PPI is often considered a leading indicator for where the CPI will be in the coming months.

AE2S Nexus gives credit to the PPI as a better indicator for products and materials related to infrastructure projects than the CPI. The PPI tracks more closely to cost index values published by Engineering News Record (ENR) and includes categories such as scrap steel, pumps and compressors, and industrial chemicals. Due to the inclusion of these types of items, the PPI itself is more closely aligned with the inputs that comprise public works projects.

The PPI numbers released in mid-December made headlines because wholesale prices rose 9.6% year over year, representing the highest values in the history of the index. Since the PPI is a leading indicator, we should expect inflation to continue at least through the spring of 2022.

One interesting note for both the CPI and PPI in December is that economists predicted inflation was going to be high, but in both instances, they projected lower than actual values. This means that even those who are experts continue to be surprised at how much inflation is impacting the economy.

Both the reported measures of inflation and the inflation that we experience in utility operations are critical. Feel free to reach out to Ryan.Graf@ae2s.com with questions or to share some of your on-the-ground observations of how inflation is impacting your utility.