CPI vs PPI

March 2026 PPI release (April 14, 2026): final demand +0.5 percent month-over-month (well below expected +0.8 percent despite Iran war impact). 12-month PPI +4.0 percent YoY (highest since February 2023 at +4.7 percent). Headline PPI for finished goods accelerated from +1.6 percent to +4.1 percent (highest since February 2023). Core PPI ex foods, energy, trade services +3.6 percent YoY (largest since November 2025).

March 2026 CPI: headline +3.3 percent YoY, monthly +0.9 percent SA. Core CPI +2.6 percent YoY, monthly +0.2 percent SA.

The combined April 2026 reading: PPI exceeds CPI by 0.7pp at headline level; core PPI exceeds core CPI by 1.0pp. Configuration suggests producer-level inflation pressure exceeds consumer-level. Two interpretations: (1) producer margins compressing as cost increases not fully passed to consumers; (2) producer inflation will lead consumer inflation higher in coming months.

The Iran war impact is asymmetric: PPI rose 0.5 percent (well below expected) despite war impact, suggesting producer margin compression rather than passthrough. CPI rose 0.9 percent month-over-month (above core 0.2 percent) reflecting energy price surge directly hitting consumers.

PPI typically leads CPI by 3-9 months. The transmission mechanism: producers face input cost increases (commodity prices, wages, intermediate goods); margins initially compress; eventually pass-through to wholesale prices captured by PPI; final demand prices charged to wholesalers; wholesale prices charged to retailers; retailers pass through to consumer prices captured by CPI.

Lag mechanics. Commodity price spike: energy, metals, food. Captured in PPI within 1-2 months. Manufacturing pass-through: 2-4 months as inventory turnover. Wholesaler-to-retailer: 1-2 months. Retailer pass-through to consumer: 2-3 months. Total cycle: 6-11 months from commodity spike to CPI impact.

The practical implication: monitoring PPI provides early warning for CPI. PPI accelerating suggests CPI acceleration ahead. PPI deceleration suggests CPI deceleration ahead (with 6-9 month lag).

April 2026 setup: headline PPI accelerating to 4.0 percent YoY suggests CPI may rise above current 3.3 percent in coming months. Core PPI 3.6 percent suggests core CPI may rise above current 2.6 percent. Iran war + tariffs are catalyzing the PPI surge that may transmit to CPI by Q3-Q4 2026.

April 2026 inflation environment shaped by two transmission channels.

Iran war oil shock (February 2026 onset): WTI rose to $95.85 (April 2026, +30 percent from January 2026). Oil price increase transmits to PPI in 1-2 months (energy components, transportation costs); to CPI in 2-3 months (gasoline, energy bills). Net effect: PPI rose 4.1 percent for finished goods (March 2026); CPI rose 3.3 percent.

Tariff environment: Trump-era tariff escalations affecting imported goods. Tariff increases of 10-25 percent on specific categories raised PPI for affected goods. Pass-through to CPI varies: 50-100 percent passthrough for non-substitutable imports; 30-50 percent passthrough for substitutable goods (consumers shift to domestic). Net effect: PPI core ex foods/energy/trade +3.6 percent (March 2026) reflects tariff impact.

The practical implication: April 2026 PPI 4.0 percent YoY likely transmits to CPI 3.5-4.0 percent YoY by Q3-Q4 2026 if passthrough continues. Fed reaction: sustained PPI above 4 percent likely keeps Fed pause through 2026.

CPI and PPI typically move together but with different timing and magnitude.

Divergence regimes. PPI rising faster than CPI (current April 2026): producer margins compressing or passthrough delayed. Margin pressure on producers, eventual consumer impact. CPI rising faster than PPI: rare. Often reflects services-led inflation where producer prices not directly affected. Both rising: full inflationary regime (2022). Both falling: full disinflation (typical recession).

Long-run correlation between CPI and PPI: 0.70-0.85 (high positive). Correlation lower during transitional regimes when components diverge.

April 2026 PPI premium to CPI: 0.7pp at headline; 1.0pp at core. Configuration suggests producer-level pressure exceeds consumer-level. Watch for either: (1) PPI pass-through to CPI in coming months (consumer inflation acceleration ahead); (2) Producer margin compression continues without passthrough (producer profit compression, eventual layoffs).

The practical implication: PPI-vs-CPI gap is producer margin indicator. Sustained gap of 1pp+ at core level suggests significant margin compression. Earnings impact: producers (industrials, manufacturers) face margin pressure; retailers and consumer-facing businesses with pricing power gain. Favored sectors during PPI > CPI gap: companies with pricing power (CMG, MCD, COST, TJX). Disfavored: low-margin manufacturers, commodity processors.

Three macro cycle examples.

2008-09 GFC: PPI peaked +9.5 percent (mid-2008, oil price spike) then fell to -7 percent (mid-2009). CPI peaked +5.5 percent (mid-2008) then -1 percent (mid-2009). Both deflationary. PPI led CPI both directions.

2010-2020 normalization: PPI 0-3 percent typical; CPI 1-3 percent typical. Modest divergence.

2021-2022 inflation surge: PPI peaked +11.7 percent (March 2022); CPI peaked +9.1 percent (June 2022). PPI led CPI by 3-4 months. Premium 2-3pp.

2023-2024 disinflation: PPI fell to +0.3 percent (mid-2023); CPI fell to +3 percent (mid-2023). PPI undershot CPI temporarily reflecting commodity decline.

2025-2026 acceleration: PPI rose to +4.0 percent (March 2026); CPI rose to +3.3 percent. PPI exceeds CPI by 0.7pp. Iran war + tariffs catalyzed.

The pattern: PPI leads CPI in major directional moves. Premium of 0.5-1.0pp typical in normal regimes. Premium of 2-3pp during inflation surges. Premium narrows or inverts during recessions or deflation.

Stress history.

1973-74 stagflation: PPI peaked +20 percent (1974); CPI peaked +12 percent (1974). Premium 8pp (extreme). Oil shock + supply-side inflation.

2008-09 GFC: PPI +9.5 percent peak (mid-2008) to -7 percent (mid-2009). CPI +5.5 percent to -1 percent. Deflationary peak-to-trough.

2020 COVID flash crash: PPI fell from +1.5 percent (Feb 2020) to -1.4 percent (April 2020). CPI fell from +2.3 percent to +0.3 percent. Modest disinflation, both rebounded quickly.

2021-2022 inflation surge: PPI peaked +11.7 percent March 2022; CPI peaked +9.1 percent June 2022. PPI led CPI by 3-4 months.

2023-2024 disinflation: PPI fell faster than CPI. PPI to +0.3 percent (mid-2023); CPI to +3.0 percent. Suggested CPI deceleration ahead (which materialized).

2025-2026 acceleration: PPI rose to +4.0 percent (March 2026); CPI to +3.3 percent. Suggests CPI acceleration ahead absent margin compression.

The pattern: PPI leads CPI by 3-9 months during major regime changes. PPI extremes (above 8 percent or below -3 percent) signal regime shifts. April 2026 PPI 4.0 percent at high end of normal range suggests inflation pressure persistence.

CPI and PPI not directly tradable but drive significant cross-asset moves through Fed policy expectations and TIPS pricing.

CPI release: BLS monthly mid-month. PPI release: BLS monthly mid-month (typically 1-2 days after CPI). Both drive bond market reactions, equities, USD.

For positioning around CPI/PPI releases. CPI strong release: bonds sell off (yields up); USD strengthens; growth equities underperform. PPI release follows CPI by 1-2 days; provides confirmation or divergence signal.

April 2026 PPI rose 0.5 percent month-over-month (below 0.8 percent expected). Despite war impact, PPI surprise was contained. Suggests producer margin compression rather than passthrough.

For TIPS positioning: 5-year breakeven 2.5 percent (April 2026); 10-year breakeven 2.6 percent. Both reflect modest inflation premium. PPI accelerating could push breakevens higher to 2.7-3.0 percent if passthrough materializes.

The practical implication: monitoring PPI is essential as forward signal for CPI direction. Combined CPI + PPI release week (typically two consecutive days) drives substantial market repositioning. Sustained PPI above 4 percent likely keeps inflation expectations elevated.

For macro allocators, CPI-vs-PPI provides inflation cycle classification.

PPI > CPI substantially (premium > 2pp): inflation surge regime. Producer prices accelerating ahead of consumer. Either passthrough ahead or margin compression. Watch PPI sustained above 5 percent for inflation re-acceleration.

PPI > CPI moderately (premium 0.5-1.5pp, current April 2026): producer margin compression or delayed passthrough. Watch for either CPI follow-through (consumer inflation acceleration) or PPI deceleration (margin compression resolved).

CPI > PPI moderately: services-led inflation. Healthcare, education, financial services driving CPI without producer impact.

CPI > PPI substantially: rare. Often signals services inflation surge or PPI deflation. Last seen 2008-09 transition.

April 2026 setup: PPI 4.0 percent + CPI 3.3 percent. Premium 0.7pp at headline; 1.0pp at core. Producer-level pressure exceeds consumer-level. Watch May 2026 release for confirmation of trajectory.

For positioning: long inflation hedges (TIPS, gold, commodities) if PPI sustains above 4 percent. Short interest rate sensitive sectors (XLU, XLRE) if PPI accelerates. Long companies with pricing power if margin compression intensifies.

CPI-vs-PPI captures consumer-vs-producer inflation. Compared to other inflation pairs.

Vs core CPI vs core PCE: methodology differences. CPI vs PPI captures different stages of supply chain.

Vs shelter CPI vs core CPI: shelter's role within core CPI. Different focus from supply chain stages.

Vs supercore vs core PCE: services component decomposition. Different focus.

Vs Michigan inflation expectations vs breakeven: forward-looking expectations vs realized. Different time horizon.

Vs commodity index vs CPI: commodities capture upstream input prices. Leads PPI by 2-4 months; CPI by 6-11 months.

For allocator monitoring, CPI-vs-PPI is foundational supply chain inflation pair. April 2026 reading: PPI 4.0 percent + CPI 3.3 percent (premium 0.7pp). Pair complements core PCE/supercore (Fed-watched), shelter/core CPI (component decomposition), Michigan/breakeven (expectations) for comprehensive inflation cycle read.

March 2026 PPI +4.0 percent YoY (largest since February 2023); core PPI +3.6 percent YoY (largest since November 2025). CPI +3.3 percent YoY; core CPI +2.6 percent YoY. PPI premium to CPI: 0.7pp headline, 1.0pp core. Iran war oil shock + tariffs catalyzed PPI surge. WTI $95.85 (+30 percent from January 2026).

Forward-looking through 2026: April 2026 PPI release (mid-May) for April data. Sustained PPI above 4 percent likely keeps inflation expectations elevated. PPI pass-through to CPI typically 6-9 months (Q3-Q4 2026 for current PPI surge). Fed reaction: sustained inflation pressure likely keeps Fed pause through 2026.

Key watches: April 2026 PPI release (mid-May); April 2026 CPI release (mid-May, typically released 1-2 days before PPI); commodity prices (WTI, copper, agricultural); tariff developments; wage growth (Atlanta Fed Wage Tracker monthly).

Key risks: PPI accelerating above 5 percent would trigger inflation re-acceleration scenario. Fed surprise hawkish pivot. Margin compression resolution would mean CPI passthrough ahead. Iran ceasefire collapse would extend oil shock.

Expected PPI +3.0 to +5.0 percent YoY range; CPI +2.8 to +4.0 percent range over coming 6 months. Configuration suggests inflation persistence above target with potential acceleration if PPI passthrough materializes. The pair offers leading-indicator characteristics for CPI direction.