📈 CPI vs. PPI

These two data points reveal insights about the market.

CPI vs. PPI

What we’re seeing in terms of data from CPI and PPI that were released last week is critical to understanding what’s going on in the market right now. Let’s dive into it.

First, let’s take a step back.

CPI is the consumer price index. I like to think of it as what we pay - as the average consumer.

PPI is the producers price index. It tells us what companies are paying to produce goods/services. It’s what they pay.

Typically these two pieces of data move in conjunction with each other, however that is starting to change.

The first image above is CPI and the second image is PPI.

You can see that in the last few months, while CPI has been dropping, PPI has increased.

That is because initially, CPI was dropping as a result of PPI dropping. With stronger profit margins, companies could decrease prices, thus decreasing CPI.

However now that we are seeing PPI rise, thus profit margins deteriorating, companies are looking to downsize and cut costs in order to not pass on price increases to consumers.

This is concerning for businesses and explains why our market has been driven so heavily by the Magnificent 7 and hasn’t seen a broad-based lift.

This is an important concept to understand so you can hone in on where you should be committing capital. I review in more detail what is going on here: