Why can changes in the producer price index (PPI) predict changes in the consumer price index (CPI)?
A) because they are computed using the same market basket
B) because consumers and producers often buy the same goods
C) because producers often pass along price increases to consumers
D) because consumers pay what retailers charge

Question

Quizplus · Accepted Answer

The PPI measures the average change in prices received by producers for their goods and services, which can include the cost of materials, labor, and overhead. When the PPI increases, it suggests that producers are facing higher costs, which they may pass on to consumers in the form of higher prices. Therefore, changes in the PPI can be an early warning sign for potential inflationary pressure on the CPI, which measures the average change in prices paid by consumers for goods and services. Therefore, choice C is the best answer.

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