CPI and PPI: Who drives who in the time-frequency space?

Abstract

The purpose of this study is to examine the relationship between Consumer Price Index and Producer Price Index across various business cycles in France. Concerning methodological aspects of this paper, we apply partial continuous wavelets transforms to perform time-frequencies analysis to remove the effect of the monetary trend on this relationship. The results indicate a positive relationship between CPI and PPI, during economic crisis, particularly at the mid-term. With partial wavelet coherence to consider the monetary mass, we analyze the long-term relationship between the two indexes. The phase-difference interpretation exhibits a lead of PPI over CPI. JEL codes : C54; E31; E32; E02 ; E50