THE GAP BETWEEN D-PPI AND CPI GRADUALLY EXPANDS

Consumer prices increased by nearly 16% in recently while producer prices rose by 27%, marking a period of huge divergence between the indices. Looking at a longer period of time, both CPI and D-PPI stood at 100 in 2003 then reached 517.96 and 590.52, respectively, in February 2021. D-PPI outdid CPI by 14%, which was the largest gap seen in 218 months. Even if the gap will not be closed completely, it will decrease in time. Apart from the classical supply-demand factor, two reasons for the accelerating inflation are the increase in commodity prices and rapid increase in the foreign exchange (FX) rate. November 2020 was the month when the gap between the currency basket and D-PPI increased at most. The FX rate has started to but price increases have continued, and the range has tended to narrow since November. The price increase index exceeded the FX rate in February in the index we created by using December 2019 as base. Considering the last 14 months, the monthly currency basket index averaged 123, while average of D-PPI is still at 113. The forex rate poison hasn’t been removed from prices yet. So, it’s too early to say that prices will decrease with declining FX rates.