Should we worry about the high producer prices Yes but

Over the past two years, both global and domestic producer prices have risen markedly. This has raised concerns that the high producer inflation may eventually be passed onto consumer prices. This note compares producer and consumer price indices and the implications for pass-through of PPI to CPI inflation. We find strong co-movement between final PPI and goods CPI, but somewhat weaker co-movement with headline CPI. This suggests that some pass-through should be expected, particularly for the closely related baskets such as final PPI and goods CPI. However, the material differences between the indices, together with competition considerations, will serve to moderate pass through.