The Causal Relationship between Producer Price Index
and Consumer Price Index: Evidence from Saudi Arabia
Mahdi M. Alsultan
Department of Agricultural Economics
King Saud University, Saudi Arabia
Abstract:
Nowadays, empirical analysis on Consumer Price Index CPI and Producer Price Index PPI
relationship has received greater attention, as there are considered as indicators of inflation. The
causality between PPI and CPI remains a controversial issue in empirical findings. There are three
different empirical evidences about PPI and CPI nexus, namely one way, two-way and no causality in
literature.
This paper investigates the relationship between consumer price index (CPI) and producer price index
(PPI) in Saudi Arabia using monthly data over the period January 2000 to September 2012. Time series
properties, namely order of integration and co-integration, have been examined by applying the full
information multivariate procedure proposed by Johansen (1988).The co-integration methodology
basically characterizes the existence of a long-run relationship.
Keywords: Causality, Consumer price, Producer price, Saudi Arabia
Section I Introduction
Section II reviews the literature.
Section III describes methodology and the description of data.
Section IV presents empirical results.
The last section concludes the study and references.