What PPI is Saying About CPI

Stagnant or decelerating consumer prices seem unlikely after the Bureau of Labor Statistics reported yesterday that US producer prices increased more than forecasted in September. In the last decade, the relationship between the two price indexes has been relatively strong, with a positive correlation of approximately 0.78.

There have been only a few instances of a positive monthly change in PPI and a non-positive change in CPI. Since 2012, this has occurred five times, but only two of those examples featured a monthly PPI change at or above September’s level of 0.4%.

Even further, there have only been two months where the monthly change in PPI has been positive in both of its two major divisions (goods and services), and CPI has not followed.

The other insight into what to expect out of today’s CPI report is the potential for a resurgence of energy as an inflationary force. After the last two months of declining energy prices for consumers and producers, it seems the volatile sector will, once again, not be working in the favor of the American consumer.

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