Causality between consumer price and producer price: Evidence from Mexico

Aviral Tiwari, Suresh K.G.,, Mohamed Arouri and Frédéric Teulon
Authors registered in the RePEc Author Service: Suresh K.G. ()

Economic Modelling, 2014, vol. 36, issue C, 432-440

Abstract: We examine the relationship between two inflation indices, consumer price index (CPI) and producer price index (PPI) for Mexico, a case study country which has successfully implemented inflation targeting after the economic crisis and high inflationary situation in 1995. Since the causality running from PPI to CPI exemplifies the cost push nature of inflation and the opposite is the indicator of demand pull inflation, this analysis could provide significant policy implications. We contribute to the literature by decomposing the time–frequency relationship between CPI and PPI through continuous wavelet approach. Our results indicate a bidirectional relationship between CPI and PPI. In short periods (1 to 7months scale) CPI is leading PPI, while for longer periods (8 to 32months scale) PPI is the leading variable.

Keywords: Inflation; Consumer price index; Producer price index; Wavelet approach (search for similar items in EconPapers)
JEL-codes: E3 E31 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:36:y:2014:i:c:p:432-440

DOI: 10.1016/j.econmod.2013.09.050

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