Producer Prices, Cost-Push-Inflation and Stock Market Returns

Authors

Presenter(s)

Anthony J. Bello

Files

Description

Although the Fed looks at the Consumer Price Index (CPI) and the Personal Consumption Expenditure index (PCE) as the key measures of inflation, in this study I focus my attention on Producer Prices (PPI) as a leading indicator of inflation in final goods produced. I want to test three hypotheses. First there is a high pass through rate for prices in the 4 basic stages of production identified by the Bureau of Labor Statistics (BLS). Using regression analysis to measure the pass through rate, I expect the b coefficients to be greater than zero and close to one. This would indicate that a cost-push inflation process is working at the producer price level. I also want to test the hypothesis that out-of-sample forecasting models of cost-push inflation at the various stages of production are both efficient and stable with acceptable levels of forecast error. Finally, I want to test the hypothesis that stock market prices co vary with producer prices. An inverse relationship suggests that rising factor costs cause the aggregate supply curve to shift upwards and to the left, lowering or reducing the rate of GDP growth, which results in a decline in stock market prices. A direct relationship suggests that factor costs are rising because of demand pull inflationary forces in the economy, leading to rising stock market prices.

Publication Date

4-9-2016

Project Designation

Independent Research

Primary Advisor

Trevor C. Collier

Primary Advisor's Department

Economics and Finance

Keywords

Stander Symposium project

Disciplines

Arts and Humanities | Business | Education | Engineering | Life Sciences | Medicine and Health Sciences | Physical Sciences and Mathematics | Social and Behavioral Sciences

Recommended Citation

"Producer Prices, Cost-Push-Inflation and Stock Market Returns" (2016). Stander Symposium Projects. 739.
https://ecommons.udayton.edu/stander_posters/739