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Causality between consumer price and producer price: Evidence from Mexico

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  • Tiwari, Aviral Kumar
  • Suresh K.G.,
  • Arouri, Mohamed
  • Teulon, Frédéric

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.

Suggested Citation

  • Tiwari, Aviral Kumar & Suresh K.G., & Arouri, Mohamed & Teulon, Frédéric, 2014. "Causality between consumer price and producer price: Evidence from Mexico," Economic Modelling, Elsevier, vol. 36(C), pages 432-440.
  • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:432-440
    DOI: 10.1016/j.econmod.2013.09.050
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    References listed on IDEAS

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    Cited by:

    1. Roxana Cristina VILCU (MANACHE), 2015. "Inflation by Producer Price Index – predictive factor for Inflation by Consumer Price Index? The case of Romania," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 63(2), pages 22-37, February.
    2. repec:ipg:wpaper:2014-474 is not listed on IDEAS
    3. Jamal Bouoiyour & Refk Selmi, 2014. "The Nexus between Inflation and Inflation Uncertainty via wavelet approach: Some Lessons from Egyptian case," Economics Bulletin, AccessEcon, vol. 34(4), pages 2093-2106.
    4. repec:ipg:wpaper:2014-471 is not listed on IDEAS
    5. repec:ipg:wpaper:2014-444 is not listed on IDEAS
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    7. repec:ipg:wpaper:2014-516 is not listed on IDEAS
    8. repec:spr:advdac:v:11:y:2017:i:4:d:10.1007_s11634-017-0300-3 is not listed on IDEAS
    9. repec:ipg:wpaper:2014-461 is not listed on IDEAS
    10. repec:taf:applec:v:50:y:2018:i:4:p:407-425 is not listed on IDEAS
    11. Ferrer, Román & Bolós, Vicente J. & Benítez, Rafael, 2016. "Interest rate changes and stock returns: A European multi-country study with wavelets," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 1-12.
    12. Wang, Minggang & Tian, Lixin & Xu, Hua & Li, Weiyu & Du, Ruijin & Dong, Gaogao & Wang, Jie & Gu, Jiani, 2017. "Systemic risk and spatiotemporal dynamics of the consumer market of China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 473(C), pages 188-204.
    13. repec:ipg:wpaper:2014-412 is not listed on IDEAS
    14. Ülke, Volkan & Ergun, Ugur, 2013. "The Relationship between Consumer Price and Producer Price Indices in Turkey," MPRA Paper 59437, University Library of Munich, Germany.
    15. repec:ipg:wpaper:2014-558 is not listed on IDEAS
    16. Boako, Gideon & Alagidede, Paul, 2017. "Co-movement of Africa’s equity markets: Regional and global analysis in the frequency–time domains," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 468(C), pages 359-380.

    More about this item

    Keywords

    Inflation; Consumer price index; Producer price index; Wavelet approach;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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