Journal of Revenue and Pricing Management

, Volume 17, Issue 3, pp 122–130 | Cite as

The relation between the producer and consumer price indices: a two-country study

  • Yusuf V. Topuz
  • Hassan Yazdifar
  • Sunil SahadevEmail author
Research Article


Marketing managers are often in a dilemma about which pricing index to rely on while calculating the annual increase in the prices for their product. To provide insights that can reduce this dilemma, a critical comparison of the Producer Price index and consumer price index is called for. In this study, the relation between the Producer Price Index (PPI) and Consumer Price Index (CPI) was investigated through a comparison between Turkey and UK. Unlike many other previous studies, this study tried to determine the dominant pricing approach in an economy by examining the relation between the producer and consumer prices. In this context, VAR, impulse-response, variance decomposition, and Granger causality tests were used for the analyses of time series data. The results of study showed that there was bidirectional causality between the producer and consumer prices in both countries. Therefore, it was asserted that businesses in both countries generally apply mixed pricing approach. The results thus provide some interesting insights that can aid marketing managers in their pricing decisions.


Price indexes General pricing approaches Time series analysis 


  1. Balliger, T.P., J.B. Stine, and M.A. Thompson. 2009. Price Transmission And Pass-Through Effect In U.S. Alcoholic Beverage Industries. The International. Journal of Economic and Social Research 5 (1): 23–38.Google Scholar
  2. Barışık, S., and E. Demircioğlu. 2006. Relationship of Export-Import, Convertibility, Exchange Rate Regime in Turkey (1980-2001). Zonguldak Karaelmas University Journal of Social Sciences 2 (3): 71–84.Google Scholar
  3. Blomberg, S. B. and E. S. Haris. 1995. The Commodity-Consumer Price Connection: Fact or Fable? FRBNY Economic Policy Review, October: 21–38.Google Scholar
  4. Caporale, G.M., M. Katsimi, and N. Pittis. 2002. Causality Links between Consumer and Producer Prices: some Empirical Evidence. Southern Economic Journal 68 (3): 703–711.CrossRefGoogle Scholar
  5. Cavusgil, T.S. 1996. Pricing for Global Markets. Columbia Journal of World Business 31 (4): 66–78.CrossRefGoogle Scholar
  6. Clark, T.E. 1995. Do Producer Prices Lead Consumer Prices? Federel Reserve Bank of Kansas City Economic Review 80 (3): 25.Google Scholar
  7. Colclough, W.G., and M.D. Lange. 1982. Empirical Evidence of Causality from Consumer to Wholesale Prices. Journal of Econometrics 19: 379–384.CrossRefGoogle Scholar
  8. Cushing, M.J., and M.G. McGarvey. 1990. Feedback between wholesale and consumer price inflation: a reexamination of the evidence. Southern Economic Journal 56: 1058–1072.Google Scholar
  9. Cutler, J., C. Chan and U. Li. 2005. The relationship between commodity and consumer prices in Mainland China and Hong Kong. Hong Kong Monetary Authority Quarterly Bulletin, June. Accessed April 2007.
  10. Demir, Ö. 2007. Price Indexes and Inflation, DIE Sorularla İstatistikler Dizisi 2, Ankara. Accessed October 2007.
  11. Dorestani, A., and L.H. Arjomand. 2006. An Empirical Study Of The Relationship Between Consumer And Producer Price Index: A Unit Root Test And Test of Cointegration. The Coastal Business Journal, Spring 5 (1): 33–38.Google Scholar
  12. Enders, W. 2004. Applied Econometric Time Series, 2nd ed. Danver: Wiley.Google Scholar
  13. Gang, F., H. Liping, and H. Jiani. 2009. CPI vs. PPI: Which drives which? Front. Econ. China 4 (3): 317–334.Google Scholar
  14. Ghazali, M.H., O.A. Yee, and M.Z. Muhammad. 2008. Do Producer Prices Cause Consumer Prices? Some Empirical Evidence. International Journal of Business and Management 3 (11): 78–82.Google Scholar
  15. Granger, C.W.J., R.P. Robins, and R.F. Engle. 1986. Wholesale and Retail Prices: bivariate Time-Series Modeling with Forecastable Error Variances. In Model Reliability, ed. D.A. Belsley, and E. Kuh, 1–17. Cambridge, Massachusetts: MIT Press.Google Scholar
  16. Granger, C.W.J. 1969. Investigating Causal Relations by Econometric Models and Cross-Spectral Methods. Econometrica 37: 424–438.CrossRefGoogle Scholar
  17. Jones, J.B. 1986. Consumer Prices, Wholesale Prices, and Causality. Emprical Economics 11: 41–55.CrossRefGoogle Scholar
  18. Huh, C.G., and B. Trehan. 1995. Modeling the Time Series Behavior of the Aggregate Wage Rate. Federal Reserve Bank of San Francisco Economic Review 1: 3–13.Google Scholar
  19. Koc, A.A., G. Boluc, and S. Kovaci. 2010. Concentration of Food Retailing and Anti-Competitive Practices in Turkey. Food Economics—Acta Agriculturae Scandinavica 7 (2–4): 151–162.CrossRefGoogle Scholar
  20. Liozu, S.M. 2017. Value Based Pricing Special Issue. Journal of Revenue and Pricing Management 6 (1): 1–3.CrossRefGoogle Scholar
  21. Liping, H., F. Gang, and H. Jiani. 2008. CPI vs PPI: which Drives Which? Economic Research Journal 43 (11): 16–27.Google Scholar
  22. Mehra, Y. 1991. Wage Growth and the Inflation Process: an Empirical Note. American Economic Review 81 (4): 931–937.Google Scholar
  23. Müslümov, A., M. Hasanov ve C. Özyıldırım. 2002. Döviz Kuru Sistemleri ve Türkiye’de Uygulanan Döviz Kuru Sistemlerinin Ekonomiye Etkileri. İstanbul: TUGIAD Publishing.Google Scholar
  24. Palmer, A., and B. Hartley. 1999. The Business and Marketing Environment. Maidenhead: McGraw Hill.Google Scholar
  25. Rogers, R.M. 1998. A primer on short term linkages between key economic data series. Economic Review, Federal Reserve Bank of Atalanta 83 (2): 40–54.Google Scholar
  26. Shahbaz, M., R.U. Awan, and N.M. Nasir. 2009. Producer and Consumer Prices: Nexus ARDL Bounds Testing Approach. International Journal of Marketing Studies 1 (2): 78–86.CrossRefGoogle Scholar
  27. Silver, J.L., and T.D. Wallace. 1980. The Lag Relationship Between Wholesale and Consumer Prices. Journal of Econometrics 12: 375–387.CrossRefGoogle Scholar
  28. Sidaoui, J., C. Capistran, D. Chiquiar and M. Ramos-Francia. 2009. A Note on the Predictive Content of PPI over CPI Inflation: The Case of Mexico. Banco de Mexico Working Papers No: 2009–2014.Google Scholar
  29. Sims, C.A. 1980. Macroeconomics and Reality. Econometrica 48: 1–48.CrossRefGoogle Scholar
  30. Tellis, G.J. 1986. Beyond Many facets of Pricing. Journal of Marketing 50: 146–160.CrossRefGoogle Scholar
  31. Tiwari, A.K., K.G. Suresh, M. Arouri, and F. Teulon. 2014. Causality Between Consumer Price and Producer Price: evidence from Mexico. Economice Modelling 36: 432–440.CrossRefGoogle Scholar
  32. Tiwari, A.K., M. Mutascu, and A.M. Andries. 2013. Decomposing time-frequency relationship between producer price and consumer price indices in Romania through wavelet analysis. Economic Modelling 31: 151–159.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd., part of Springer Nature 2017

Authors and Affiliations

  • Yusuf V. Topuz
    • 1
  • Hassan Yazdifar
    • 2
  • Sunil Sahadev
    • 3
    Email author
  1. 1.Depertment of business administrationAbant Izzet Baysal UniversityBoluTurkey
  2. 2.International Finance and Accounting Unit at Salford Business SchoolUniversity of SalfordSalfordUK
  3. 3.Salford Business SchoolUniversity of SalfordSalfordUK

Personalised recommendations