According to the law of price transmission, PPI has certain influence on CPI. PPI reflects the price level of production, while CPI reflects the price level of consumption. Generally, the fluctuation of the overall price level first appears in the production field, then spreads to the downstream industries through the industrial chain, and finally affects consumer goods. The industrial chain can be divided into two parts: one is the production with industrial products as raw materials, and the conduction of raw materials → means of production → means of subsistence. The other is the production with agricultural products as raw materials, with the transmission of agricultural means of production → agricultural products → food.
Because CPI includes not only the price of consumer goods, but also the price of services, CPI and PPI are not strictly corresponding in statistical caliber, so it is possible that the changes of CPI and PPI are not consistent. CPI and PPI continue to deviate, which does not conform to the law of price transmission. The main reason of price transmission fracture is that the industrial product market is in the buyer's market and the government artificially controls the price of public goods.
Under different market conditions, there are two possible situations in which the price of industrial products is transmitted to the final consumption price: first, under the seller's market conditions, the price increase of industrial products caused by rising costs (such as the price increase of raw materials such as energy and electricity, water and coal) will eventually be successfully transmitted to the price of consumer goods; Second, in the buyer's market, because supply exceeds demand, the price of industrial products is difficult to pass on to the price of consumer goods, and enterprises need to reduce profits to absorb rising costs. As a result, the prices of products in the middle and lower reaches are stable and may even continue to fall, and the profits of enterprises are reduced. For some enterprises that are hard to digest the rising costs, they may face bankruptcy. The prices of industrial products that can be successfully transmitted (mainly the prices of energy raw materials such as electricity, coal and water) are currently mainly within the scope of government price adjustment. In the case that the price of upstream products (PPI) continues to rise, enterprises cannot smoothly pass on the upstream costs, which will increase the price of final consumer goods (CPI) and eventually lead to a decrease in corporate profits.
PPI is usually used as an important indicator to observe the level of inflation. Because food prices rise due to seasonal changes, and energy prices often fluctuate unexpectedly, in order to reflect the overall commodity price changes more clearly, changes in food and energy prices are generally excluded, thus forming a "core producer price index" to further observe the changing trend of inflation rate.
CPI drives PPI: food
Producers of food and many other agricultural and sideline products usually provide their products to the society in two ways: one is to sell them directly to the end consumers, and the other is to sell them to processing plants, which then sell them to the end consumers. The transaction price (retail price) formed by the former method enters CPI statistics, and the transaction price (wholesale price) formed by the latter method enters PPI statistics.
There is obviously a close relationship between the retail price and the wholesale price of food and many other agricultural and sideline products. Under the condition of highly open agricultural and sideline products market, producers of agricultural and sideline products tend to accept only one price in both markets at the same time. Even so, because the weight of food and many other agricultural and sideline products in consumer price statistics is obviously higher than that in producer price statistics, any change in food and agricultural and sideline products will cause greater CPI changes than PPI changes. Although this situation can not be simply said that the change of CPI has driven or influenced the change of PPI, it is easy to draw a conclusion that affirms this relationship when summarizing and analyzing the statistical data reflecting this relative change.
In real life, people can also see that the agricultural and sideline products in the retail market are more volatile, while the prices of agricultural and sideline products in the wholesale market are mostly determined by contracts, which are stable relative to retail prices. At the same time, under the background of the development of bulk agricultural and sideline products futures market, the price level of these agricultural and sideline products is influenced by both local and international factors, which has an impact on the transaction price of retail market and wholesale market. All these situations show that there are many possible situations about the relationship between the retail price and the wholesale price of food and other agricultural and sideline products. The research results show that the wholesale price of agricultural and sideline products in a certain market has greater influence on the retail price than the retail price.