A LINKAGE BETWEEN PRODUCER AND CONSUMER PRICES IN EUROPEAN COUNTRIES

Abstract

This paper examines a linkage between consumer and producer prices within European countries. The research sample in this paper includes 23 European countries and monthly data between February 2000 and March 2023 for the harmonized index of consumer prices (HICP) and producer prices index (PPI). Using a wavelet coherence approach country country-specific linkage was provided for each of the considered countries. Empirical findings suggested diverse relationships. However, the most frequently observed linkage is the one with producer prices as leading and consumer prices as lagging variables and a positive correlation between the two. Furthermore, the relation is more prominent at higher scales or lower frequencies. Conclusively, monetary policy needs to monitor producer prices while targeting inflation rates.