A whole bunch of inflation data comes out this week, because the Bureau of Labor Statistics puts out its inflation reports in pairs: the consumer price index, followed by the producer price index.<\/p>\n
The CPI is easy to understand: It measures how much consumers are paying for stuff. <\/p>\n
PPI is a little more complex. It\u2019s often described as “inflation at the wholesale level.” But that’s only part of the story, because it measures inflation in the prices that businesses are charging all buyers<\/a> \u2014 whether it’s other businesses or consumers.<\/p>\n Both CPI and PPI are running hotter than the Federal Reserve’s 2% target, but producer prices are rising faster than consumer prices \u2014 but what happens in the PPI doesn\u2019t always stay in the PPI.<\/p>\n Part of the reason why the consumer and producer price indexes have been moving up at different rates is because they measure different things.<\/p>\n \u201cOne of the big things is rent,\u201d said Menzie Chinn, an economics professor at the University of Wisconsin-Madison. \u201cThat\u2019s a very big component of the CPI, and that\u2019s not showing up in the PPI.\u201d<\/p>\n Over the last few years, rent growth has been slowing down.<\/a><\/p>\n \u201cWhat\u2019s happening there, which is not at all incorporated in PPI, can drive a wedge between the two series,\u201d Chinn said.<\/p>\n All that weight the consumer price index puts on rent also means CPI isn\u2019t as affected by the cost of fuel.<\/a><\/p>\n \u201cConsumers spend a lot of their budget on housing,\u201d said Laura Veldkamp, an economics professor at Columbia Business School. \u201cAnd housing doesn\u2019t respond so quickly to the price of fuel.\u201d<\/p>\n Veldkamp said the producer price index is much more sensitive to energy costs, because fuel is such an important part of what producers do.<\/p>\n