Causality Analysis of Producer Price Index (PPI) and Consumer Price Index (CPI) in Indonesia

Debby Anggraeni · Tony Irawan

9 citations0/0 files storedJURNAL EKONOMI DAN KEBIJAKAN PEMBANGUNAN

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Monetary Policy and Economic Impact Economics of Agriculture and Food Markets Market Dynamics and Volatility

Abstract

This study aims to investigate the relationship between PPI inflation and CPI inflation in Indonesia both in general and for each group of commodity, and to identify whether PPI inflation can be a leading indicator for CPI inflation or vice versa. This study employs Granger causality based on VAR model for monthly data series from January 2010 until August 2016. The results show that there are unidirectional relationship between PPI inflation and CPI inflation generally, bidirectional relationship from PPI inflation to CPI inflation for foodstuffs group, unidirectional from CPI inflation to PPI inflation for clothing group, and no causality between PPI inflation and CPI inflation for processed food, beverage, cigarette, and tobacco group.Keywords: Granger causality, producer price index, consumer price index, VAR JEL classification: E31, C22

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References

1995Do Producer Prices Lead Consumer Prices 1982Empirical evidence of causality from consumer to wholesale prices 1990Feedback between Wholesale and Consumer Price Inflation: A Reexamination of the Evidence 2011The Causal Relationship between Producer Price Index and Consumer Price Index: Empirical Evidence from Selected European Countries 2009Do Producer Prices Cause Consumer Prices? Some Empirical Evidence 1986Consumer prices, wholesale prices, and causality 2014Inflation and inflation-uncertainty in India: the policy implications of the relationship 2012Does CPI Granger-Cause WPI? New Extensions from Frequency Domain Approach in Pakistan

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