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Building A Pipeline Between Producer and Consumer Prices

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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.

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  • John O'Trakoun & David Ramachandran, 2022. "Building A Pipeline Between Producer and Consumer Prices," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 22(38), September.
    • Handle: RePEc:fip:fedreb:94812
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