The Causal Relationship between Producer Price Index and Consumer Price Index: Empirical Evidence from Selected European Countries

Abstract

The purpose of this study is to examine the causal relationship between Producer Price Index and Consumer Price Index for the five selected European countries, using seasonally adjusted monthly data from August 1995 to December 2007. Toda and Yamamoto causality test (1995) are employed to investigate causality. The results indicate that there is a unidirectional causality between producer price index and consumer price index, running from producer price index to consumer price index in Finland and France and bidirectional causality between two indices in Germany. In the case of the Netherlands and Sweden, no significant causality is detected.