Whats the link between the producer price index and the consumer price index?
Those who think that producer prices are an accurate predictor of retail prices may want to think again. Research in 1995 by Todd Clark of the Kansas City Fed concluded that “while simple economics suggests such a pass-through effect may occur, more sophisticated reasoning and careful consideration of the construction of the PPI and CPI data suggest any pass-through effect may be weak.” In 2003, William Gavin at the St. Louis Fed noted that the PPI has been, historically at least, a price measure of wholesale goods and has tracked retail goods—not services—over time. The goods-heavy nature of the PPI has been changing, however, as the Bureau of Labor Statistics has gradually expanded the coverage of the PPI by increasing the number of service sector industries in the inflation measure.
