Re:Inflation Appears to Be Over
by dragonwriter on Thursday November 16, 2023 @04:40AM
(#38287480)
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.
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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_b...