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Building A Pipeline Between Producer and Consumer Prices
Do rapidly rising producer prices signal pain ahead for consumers? We take a fresh look at the relationship between producer and consumer price indexes. We document a correlation between upstream producer prices and the Fed's preferred measure of consumer price inflation (the personal consumption expenditure price index). Using a statistical model, we find that that levels and growth rates of producer prices have a statistically significant impact on consumer price inflation. Gaps between the two price indexes tend to normalize over time, which, given recent data, suggests that upward ...