When prices fall in the PPI, do prices fall at the store?
When prices fall in the PPI, do prices fall at the store?
Two numbers jumped out at us as we read through the producer price index report for January, released Thursday. The price of vegetables, both fresh and dry, was way down — about 22% on an annual basis. And the price of fruit fell too — almost 14%.
But when we looked back at the consumer price index, which measures what we, as consumers, pay for things, there was no corresponding drop. The price of vegetables was down slightly — just six-tenths of a percent. And the price of fruit was actually up.
If you take a multiyear view, the producer and consumer price indexes do track each other, more or less. At least, “if you look at the long, long run,” said Leah Brooks at George Washington University.
Still, she said, if you go to the grocery store “and you want to know, are my groceries today going to reflect the PPI change I saw yesterday? Then the answer is probably not so quickly.”
Ann Owen at Hamilton College said the PPI measures the prices producers get for their goods and CPI measures the prices consumers pay at the store.
“So what’s in the middle of those two things are things like distribution costs and decisions that the retailers are making when they price the products for consumers,” Owen said.
The price you pay for, say, apples at the store isn’t just based on the price the store paid for those apples. It also factors in what the store’s paying for shipping and wages and rent — not exactly an apples-to-apples comparison.
Plus, Owen said retailers know that customers are very sensitive to prices going up, so they’re careful not to raise — or lower them — too often. “Especially if they think that the reduction in cost that they’re experiencing will be just temporary.”
And food prices can be volatile because of seasonal and weather changes.
Jay Zagorsky at Boston University’s Questrom School of Business said there’s another factor.
“We get a lot of our foodstuffs from outside the United States. For example, avocados. Most of them come from Mexico. Grapes, especially now in the winter, are primarily coming from places like Chile,” Zagorsky said.
And the PPI only measures things produced in the U.S, while the CPI includes those imports too.
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