Study On The International Conductive Relationship Between PPI And CPI

The world financial crisis has triggered global inflation, the economy suffering ahuge damage. The primary mission is to smoothly cross the financial crisis,keeping price fluctuation stability in a reasonable range and promotingeconomic development. The price index is a measure of inflation, while PPIand CPI occupy the central position in the price index system. The producer priceindex (PPI) is used to measure average price of product and the consumer price index(CPI) reflects the average price of goods and services in daily life. The consistency ofPPI and CPI is an important mark to judge whether economic structure is reasonableor not.In the first part, theory of price transmission mechanism is collectedand systematically summarized. Under the condition of market economy, pricetransmits between the upstream and downstream industry through circulation channel.The price of upstream product impacts downstream product prices throughthe industry chain and the value of products transmits from upstream to downstreamin this procedure. To transmit products from manufacturer to consumer needs threestages: production, circulation and consumption. Production stage involves theupstream, midstream and downstream manufacturers. In the three phase, the pricetransmission mechanism is divided into cost push and demand pull. The process ofcommodity circulation is very complicated, so the effect of price transmission isnot immediately apparent, often accompanied by a time lag. Because of the industrialstructure, market competition and the market environment is not always stable, thedegree of price conduction delay in all economies are different.The second part of this paper is data collecting, processing and describing. Basedon PPI and CPI historical data of the group of20(G20), this paper draws PPI andCPI charts of19countries and then conduct a classification study in accordance withthe developed countries in Europe, America, Canada, Africa and Latin Americadeveloping countries. The results show that, PPI and CPI of countries all over theworld show some correlation, especially in the developed countries in Europe andAmerica. However, the fluctuation amplitude of PPI is often more sharp than the fluctuation amplitude of CPI. The trend of differentiation of PPI and CPI is larger inAsian, African and Latin American countries and the correlation of PPI and CPI is notsignificant.The third part of this paper analyzes the horizontal domestic transmission of PPIand CPI in G20through empirical study. Methods involve seasonal adjustment,ADFunit root test, VAR model, Granger causality test. Combined with thecurrent international economic situation, this paper draws the following conclusions:in the developed countries in Europe and America, the politics is more stable and themarket system is more perfect, so the price transmission mechanism is smoother inthese countries. But the price transmission mechanism is not smooth at all indeveloping countries of Asian, African and Latin American. Developingcountries have a large gap compared with developed countries no matter in the levelof the political and economic system, market economy, or the price mechanism.The fourth part of this paper conducts empirical study on the vertical conductiverelationship between PPI and CPI. This part studies the vertical conductiverelationship between China, England and USA; between China, Japan and Korea. Theresults show that PPI and CPI of America have a significant impact on China andEngland, while PPI and CPI of England hve positive impact on USA. In addition, PPIand CPI of China have almost no impact on USA and England. In Asia, PPI and CPIin Japan and China have a significant impact on each other, while PPI and CPI inKorea have weak conductive relationship with China and Japan.The fifth part focuses on the significance, content and conclusions of thisresearch. In addition to summarizing these points, this part also puts forward severalpolicy suggestions.