Changes in the producer price index (PPI) can predict changes in the consumer price index (CPI) because:
A) interaction between supply and demand results in an equilibrium price.
B) they are computed using the same market basket.
C) producers pass on price increases to consumers within a month or two of the changes.
D) consumers and producers often buy the same goods.

Question

Changes in the producer price index (PPI) can predict changes in the consumer price index (CPI) because:​
A) interaction between supply and demand results in an equilibrium price.​
B) ​they are computed using the same market basket.
C) ​producers pass on price increases to consumers within a month or two of the changes.
D) ​consumers and producers often buy the same goods.

Quizplus · Accepted Answer

The producer price index (PPI) measures changes in the prices of goods and services sold by producers, while the consumer price index (CPI) measures changes in the prices of goods and services bought by consumers. As producers raise their prices due to increased costs, such as rising input prices or increased demand for their products, they often pass on these increases to consumers, resulting in higher prices for consumer goods and services. This relationship between PPI and CPI is not immediate, but typically occurs within a few months, so changes in PPI can be a leading indicator of changes in CPI. Therefore, option C is the best choice. The other options (A, B, and D) do not explain the relationship between PPI and CPI.

Changes in the Producer Price Index (PPI) Can Predict Changes