Building A Pipeline Between Producer and Consumer Prices

John O'Trakoun and David Ramachandran

Richmond Fed Economic Brief, 2022, vol. 22, issue 38

Abstract: Do rapidly rising producer prices signal pain ahead for consumers? We take a fresh look at the relationship between producer and consumer price indexes. We document a correlation between upstream producer prices and the Fed's preferred measure of consumer price inflation (the personal consumption expenditure price index). Using a statistical model, we find that that levels and growth rates of producer prices have a statistically significant impact on consumer price inflation. Gaps between the two price indexes tend to normalize over time, which, given recent data, suggests that upward inflationary pressures on consumers could persist.

Keywords: Producer prices; consumer prices; inflation (search for similar items in EconPapers)
Date: 2022
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