Sidaoui, José Capistrán, Carlos Chiquiar, Daniel Ramos-Francia, Manuel
Year of Publication:
Working Papers, Banco de México 2009-14
This note studies the causal relationship that may exist between the producer price index (PPI) and the consumer price index (CPI). In contrast with previous international studies, the results suggest that, in the case of Mexico, information on the PPI seems to be useful to improve forecasts of CPI inflation. In particular, CPI inflation responds significantly to disequilibrium errors with respect to the long-run relationship between consumer and producer prices. These results are based on in-sample and out-of-sample tests of Granger causality, in the context of an error correction model.