A price index that tends to be a leading indicator of future inflation rates is the
A) consumer price index.
B) producer price index.
C) GDP price index.
D) retail price index.

Question

Quizplus · Accepted Answer

The producer price index (PPI) measures the average changes in prices received by domestic producers for their output. As producers pass on increased costs to consumers, an increase in PPI could lead to an increase in future inflation rates. Therefore, PPI tends to be a leading indicator of future inflation rates. The other options, such as the consumer price index (CPI), measure changes in prices paid by consumers and, therefore, can be considered lagging indicators of inflation. The GDP price index is a broader measure of changes in prices across the overall economy, but its relationship to future inflation rates is not as clear as that of the PPI. The retail price index is not a commonly used measure of inflation.

A Price Index That Tends to Be a Leading Indicator