Study On Relationship Of CPI And PPI Based On Subcategories And Seasonal-adjusted Data

CPI represents consumer price index. It is an index to measure how the price of a group of goods and service in final market changes. And PPI is short name of producer price index. It measures the price of a group of goods and labor that enterprise buy for producing. The two indexes are both important to show how the price is going. So they are significant for government when making macroeconomic policy. Research on the relationship of PPI and CPI is popular in academia. Traditional views think that PPI precedes CPI. They believe that price fluctuation goes down from the upstream of industry chain to the downstream. But in recent years, researches show that it is not simple one-way transmission between PPI and CPI. Actually, it’s far more complex. Most researches neglected the subcategories of CPI and PPI.Consider that subcategories of CPI may act differently in the transmission of price, this paper expands the previous studies on transmission between CPI and PPI into the aspect of subcategory of CPI. Here, monthly CPI and PPI of 2001 to 2014 along with their subcategory indexes will be seasonal adjusted. And on this basis, SVAR model is used to study the transmission again, and to show the different roles of subcategory indexes in price transmission.The results show that, in general, CPI precedes PPI about 1 to 3 months. And their inverse relationship is proved to be false. In the perspective of subcategories of PPI, CPI and PPI of means of livelihood is grander cause of each other. But CPI is not grander cause of PPI of means of production. In the contrary, neither. PPI of means of livelihood precedes PPI of means of production about 6 months. In the perspective of subcategories of CPI, the price of food and living have a strong force in promoting both CPI and PPI. But the price of living is proactive, however the price of food shows more passive. The price of traffic and telecom has a strong force in promoting the price of means of production. Meanwhile the price of medical is promoting the price of means of livelihood, and the force is strong enough that only ranks between food price and living price. Therefore, while dealing with inflation, government must pay attention to the transmission between different prices. The first of all is to steady the price of living. Also measures should be taken to prevent transmission from food price to production cost. In addition, health care system must be reformed well to relief labors’ pressure of living. At the same time traffic system and telecom system have to be optimized to reduce the cost of industrial production.