What is the PPI, and why does China's factory-gate price matter to a forex trader? Explain it simply

China's producer price index measures the prices that firms receive for their output at the factory gate, before goods reach shops. It rose 5.0% on the year in September, 1.2 points faster than in August (PPI report). The consumer price index, which measures what households pay, rose only 0.9% (CPI report).

The PPI matters to a forex trader because costs at the factory gate can feed into consumer prices later, and because China's production costs affect demand for the raw materials that Australia exports. That is why the Australian dollar often reacts to Chinese price data.

We would like the friendliest explanation in the community:

• How would you explain the PPI to someone who has only shopped at a supermarket?
• Why do you think the PPI and CPI can move in different directions?
• Do you check China's PPI before you trade AUD, or do you use it as background?
• What other price measure do you find useful for understanding a currency?

PMIs explained gives another way of reading the economy.

The PPI is useful because in many economies it leads the consumer index by several months, although the lag varies from one country to another. Is there a currency you trade where you have seen that lead clearly, and over what period?

Please keep replies friendly and practical. Posts that promise a direction or sell signals will be removed.