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

Question

Quizplus · Accepted Answer

The reason changes in the PPI can predict changes in the CPI is due to the fact that producers often pass along price increases to consumers. If the PPI increases, it could be an indication that producers are paying more for the goods they use to produce their products, and as a result, may raise the prices they charge consumers, ultimately leading to an increase in the CPI. Thus, the PPI serves as an early indicator of potential future changes in the CPI.

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