Abstract
The variables the consumer price index (CPI), the producer price index (PPI) and the purchasing managers’ index (PMI) and play major roles in economic forecasting. The overall objective of this study is to assess the inter-relationships between CPI, PPI and PMI as predicting variables. This study is quantitative in nature and employed an ARDL econometric model, error correction model (ECM) and Granger causality approaches to establish long and short-run relationships. The ARDL method was used due to the fact that the variables had a mix of stationarity at levels I (0) and the first difference I (1). Quarterly datasets were obtained from Statistics South Africa (Stats SA) and the Bureau of Economic Research (BER) for the period 2000 to 2017. Results from the estimations discovered that variables cointegrate in the long-run. Additionally, evidence of short-run relationships has been determined using ECM. Furthermore, causal relationships were also analysed with results indicating that CPI causes PMI and PPI causes PMI. The implication of the research is the confirmation of the importance of relationships between CPI, PPI and PMI, which is especially significant in the short-run and the three index indicators are important macro-economic indicators for changes in overall economic activity on a macro level.
Highlights
An economy in the world is analyzed by means of critical macroeconomic variables such as inflation, GDP growth, unemployment rates, exchange rates (Auerbach & Gorodnichenko, 2012)
Findings from the literature indicate that purchasing managers’ index (PMI) is a leading indicator that can be successfully utilized to predict changes in other indexes and macroeconomic indicators regarding the general economic conditions, but the manufacturing sector
Other researchers have confirmed that producer price index (PPI) could in most cases cause changes in consumer price index (CPI)
Summary
An economy in the world is analyzed by means of critical macroeconomic variables such as inflation, GDP growth, unemployment rates, exchange rates (Auerbach & Gorodnichenko, 2012). In time periods of high levels of economic activity and economic expansion, such activities could result in increased employment, with rising income and consumer expenditure leading to increased demand for goods and services as well as commodities. Such an increase in economic growth usually results in skills shortages and other macroeconomic problems such as supply backlogs. Such a situation where demand outperforms supply, usually leads to price instability and inflation due to higher production costs and demand (IHS Markit, 2017). This study is unique and important in that limited studies have analyzed the three variables together and these indexes and their relationships are different in developed and developing countries
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