PPI captures prices at the factory or service provider's gate rather than at the checkout. It is more volatile than cpi because it is closer to commodity inputs, and pass-through to consumer prices is partial and slow because firms absorb costs in margin.
Its most practical use is mechanical: several PPI components, especially healthcare services and portfolio management fees, feed directly into the pce-price-index. Desks update their core PCE estimate the moment PPI prints, which is why it can move rates more than its headline importance suggests.
Example: CPI prints hot but PPI healthcare services come in soft. The core PCE estimate for the month drops from 0.31% to 0.24%, and the front end rallies despite the ugly CPI headline.
Related: cpi, pce-price-index, core-pce, core-cpi, industrial-production