4 ms·

CPI includes a lot of stuff that's not in PPI (including shelter and rent), so it would depend on what the components or drivers of inflation are in the CPI. I

CPI includes a lot of stuff that's not in PPI (including shelter and rent), so it would depend on what the components or drivers of inflation are in the CPI. If owner equivalent rent is moving lower (which it was in October), and if prior inflation was caused by supply chain tightness or higher input costs, than a lower PPI could indicate that supply chain tightness has eased, and goods inflation will head lower or stabilize. It's also worth noting that CPI moves slower than PPI because rents make a pretty big percentage of CPI, and rents move slower than PPI due to how the BLS measures them. It is _a_ leading indicator, but not the _sole_ leading indicator.

dragonwriter 3y ago
That's all nice abstract theory about why PPI should, in a particular model of how the world might work, be a leading indicator of CPI, but we have a history of CPI and PPI data and the fact is, PPI isn't a leading indicator of CPI. They tend to be correlated, but not in a lead-follow relationship.
- object-a 3y ago
  I will grant that the PPI and CPI are not in a clear lead-follow relationship, for composition reasons that I mentioned above and that are covered in the article you posted. However, the PPI can still be a leading indicator of the direction that consumer prices are moving. Here's a recent article from the Federal Reserve on this question: > However, we also see a considerable positive correlation between lagged values of monthly PPI inflation and the current month's inflation. In particular, the correlations between current monthly PCE inflation and previous months' PPI inflation up to seven months back are all greater than 0.3. This is our first clue that PPI inflation contains information for future changes in the PCE price index. https://www.richmondfed.org/publications/research/economic_brief/2022/eb_22-38 https://www.richmondfed.org/publications/research/economic_b...

dragonwriter 3y ago

That's all nice abstract theory about why PPI should, in a particular model of how the world might work, be a leading indicator of CPI, but we have a history of CPI and PPI data and the fact is, PPI isn't a leading indicator of CPI. They tend to be correlated, but not in a lead-follow relationship.

object-a 3y ago
I will grant that the PPI and CPI are not in a clear lead-follow relationship, for composition reasons that I mentioned above and that are covered in the article you posted. However, the PPI can still be a leading indicator of the direction that consumer prices are moving. Here's a recent article from the Federal Reserve on this question: > However, we also see a considerable positive correlation between lagged values of monthly PPI inflation and the current month's inflation. In particular, the correlations between current monthly PCE inflation and previous months' PPI inflation up to seven months back are all greater than 0.3. This is our first clue that PPI inflation contains information for future changes in the PCE price index. https://www.richmondfed.org/publications/research/economic_brief/2022/eb_22-38 https://www.richmondfed.org/publications/research/economic_b...