Question

Contrary to common belief, the price of a single item as listed in the CPI (Consumer Price Index) does not always rise and fall in tandem with the price of the same item in the PPI (Producer Price Index). Which of the following is not a reason that makes this so?
a.
Imports are excluded from PPI, but included in CPI.
b.
Taxes paid as part of the purchase are not included as part of the PPI but are included in the CPI.
c.
The PPI includes the prices of goods purchased by other producers while the CPI includes only the prices of goods purchased by consumers.
d.
Since the PPI measures the change of the price the producer receives for their product and the CPI measure the change of the price the consumer pays for the product, one should rise while the other will fall.

Answer 1

Answer: d.

Explanation: a, b, and c are valid reasons: the PPI focuses on domestic producers (generally excluding imports), excludes retail sales taxes and similar taxes, and covers prices for goods at earlier production stages (including intermediate goods) while the CPI covers final consumer purchases. Option d is incorrect because there is no rule that PPI and CPI must move in opposite directions; they can move together or differ in timing and magnitude depending on pass-through, margins, taxes, and traded/imported goods.