Producer Price Index, Consumer Price Index and Fiscal Policy: 1996-2020 Period and Turkey

Abstract

Knowing the relationship between the Producer Price Index (PPI) and the Consumer Price Index (CPI) is crucial for deciding the fiscal policies which will be implemented within the scope of combating inflation. This relationship has been examined econometrically in this study. Engle-Granger cointegration and Granger causation methods were used in this study, in which monthly data of 1996-1 and 2020-9 periods obtained from the Central Bank and TURKSTAT were used. The stationarity of the series was measured using Augmented Dickey-Fuller and Phillips-Perron unit root methods. Consequently, a 1% increase in CPI for the short term increases PPI by 1.41% and this situation stabilizes within 3.5 months in the long-term, while a 1% increase in PPI increases the CPI by about 00.9%. and this situation stabilized within 20 months in the long-term. And same mutual relationship results found for long-term as well.