Which economic indicator is considered a leading predictor of consumer inflation?
A. CPI
B. PCE Deflator
C. GDP
D. PPI
Answer (2)
The correct answer is D. PPI (Producer Price Index) because rising producer prices often lead to higher consumer prices later.PPI measures the average change over time in the selling prices received by domestic producers for their output. It reflects price changes at the wholesale or producer level before goods reach consumers. Because producers often pass on higher costs to consumers, changes in the PPI tend to predict future changes in consumer inflation.CPI (Consumer Price Index) and PCE Deflator measure consumer-level inflation but are lagging or coincident indicators, not leading ones. GDP measures overall economic output, not inflation directly.
The correct answer is letter D. PPIThe Producer Price Index (PPI) measures the prices of goods from the producers' perspective, before they reach the consumers. Since producers often pass their higher costs onto buyers, PPI changes can predict future changes in consumer prices, which is why economists and central banks use it to anticipate consumer inflation.For example, if the cost of raw materials like sugar or flour rises, bakeries in the Philippines will eventually increase the price of bread. So, if the PPI goes up, it's a warning that the CPI (what consumers pay) will also rise soon.This is important for policy planning—like when the Bangko Sentral ng Pilipinas decides whether to raise interest rates or not to manage inflation.
