CHART OF THE DAY: CPI-PPI Divergence

One of the more interesting examples of volatility we’ve been following relates to inflation (no surprise!) and the widening disconnect between CPI (consumer facing inflation) and PPI (producer inflation).  Almost anywhere we look around the globe, the spreads between CPI and PPI are currently as wide as they have ever been:

• Turkish CPI – PPI spread currently stands at -26.4, while the average divergence since 1995 is -0.33;
• U.S. CPI – PPI spread currently stands at -6.4, which is the largest divergence since the start of the data set in 1991 and well above the average of +0.32;
• China CPI – PPI spread is at -12.0, which is again the largest divergence in the history of the data set and well above the long run average of +0.94;
• Finally, the Eurozone PPI – CPI divergence current sits at -12.6 as compared to the long run average of +0.07.

In some instances (like the spike in natural gas in the Eurozone) there are non-trending factors at play.  But the reality remains that most of these spreads are 3 – 4 standard deviations beyond the norm. So, while some of these divergences may recede, the leading indicator nature of PPI to CPI will certainly keep the latter elevated.