Price conduction from PPI to CPI
Monday, 23 June 2008
BEIJING, June 22 (Xinhua): The long-debated finished oil and power prices adjustment plan finally comes out in the evening of June 19, just after the sharp fall in month-on-month growth in the consumer price index (CPI).
Experts hold that the price adjustment this time will have limited direct influence on CPI, as the influence can be offset by price drop of foods. Instead, it will have big influence on the producer price index (PPI), whose climbing trend can hardly be reined in.
In May, the growth of PPI for the first time outpaced that of CPI, and the focus of the market attention on inflation has shifted from CPI to PPI. After oil/electricity price adjustment this time, whether the pressure of price hike will start to be passed on from PPI to CPI?
Specific analysis is needed here: historically, there is not a definite causality between the trends of PPI and CPI, and the conduction from PPI to CPI is not obvious. In fact, in China, most of the contents in the PPI "basket" are means of production, and over half of the CPI "basket" are foods and service projects in terms of composition.
Therefore, PPI trend is mainly determined by import-type inflation and domestic investment cycles; and CPI trend, by food price fluctuations and domestic consumption cycle. With different compositions and different driving forces, it is rational for the trends of the two usually go against each other.
Experts hold that the price adjustment this time will have limited direct influence on CPI, as the influence can be offset by price drop of foods. Instead, it will have big influence on the producer price index (PPI), whose climbing trend can hardly be reined in.
In May, the growth of PPI for the first time outpaced that of CPI, and the focus of the market attention on inflation has shifted from CPI to PPI. After oil/electricity price adjustment this time, whether the pressure of price hike will start to be passed on from PPI to CPI?
Specific analysis is needed here: historically, there is not a definite causality between the trends of PPI and CPI, and the conduction from PPI to CPI is not obvious. In fact, in China, most of the contents in the PPI "basket" are means of production, and over half of the CPI "basket" are foods and service projects in terms of composition.
Therefore, PPI trend is mainly determined by import-type inflation and domestic investment cycles; and CPI trend, by food price fluctuations and domestic consumption cycle. With different compositions and different driving forces, it is rational for the trends of the two usually go against each other.