Short and Long Term Analysis of Consumer and Producer Price Indices: the Case of Turkey

Consumer and producer price indices and inflation are some of the most important variables that affect the welfare level of countries. The Consumer Price Index (CPI), on the other hand, reveals the concept of “Inflation” by measuring the supply-demand of individuals against the goods and services produced. The PPI and CPI coefficients also include the economic conditions in the market and cyclical fluctuations. The factors according to which the Producer Price Index and the Consumer Price Indices are shaped are very important both in terms of measuring the welfare of the economy and the effectiveness of the policies to be formed. Factors affecting consumer and producer price indices are variables such as exchange rate, commodity prices, production level and interest rates. The aim of this study is to examine the long- and short-term relationships between the Consumer Price Index (CPI) and the explanatory variables Producer Price Index (PPI), US Dollar (USD), European Currency (EURO) and Brand Oil prices in Turkey for the period 2019-2022. Accordingly, whether there is a pass-through effect from exchange rates to inflation will be tested. The ARDL model will be used as a method in the study, since the stationarity levels of the variables in the model are different as I(O) and I(1). In the domestic and foreign literature, it has been concluded that there is cointegration between variables such as CPI and PPI, exchange rate, interest rates and oil prices. According to the results of our study, a long-term relationship was determined between the variables and the short-term deviations were in balance again in the long-term was observed. This result may be due to the fact that imports are usually denominated in US Dollars. When the exchange rate pass-through is analyzed, there is a pass-through effect from the US Dollar to the CPI, while a negative pass-through effect from the EURO currency to the CPI is found. Unlike other studies, a one-unit increase in the Euro variable causes a decrease in the CPI variable. The fact that Turkey preferred Euro as the currency in its exports to Europe caused the exchange rate and inflation pass-through to go in the opposite direction.