Page 62 - Azerbaijan State University of Economics

Vugar Rahimov: Relationship between PPI and CPI in Azerbaijan: A Wavelet Approach

CONCLUSION
In this paper, using monthly data over the period from March 2004 to June 2023, I
investigate the co-movement between PPI and CPI in Azerbaijan through wavelet
approach. The main finding of this paper is that there is a mixed relationship between
aggregate producer prices and aggregate consumer prices. The co-movement exists
especially in the initial years of studied period as pass-through from oil prices, the
main driver of aggregate PPI, to consumer prices was existent. By excluding oil factor,
I find that manufacturing producer prices co-move with the aggregate CPI and non-
food CPI at lower frequency in certain periods. Additionally, producer prices of
agricultural products demonstrate relatively stronger relationship with consumer
prices especially at a lower frequency at initial and late periods of the study period.
Food producer prices series is the only component of the PPI that possesses strong
and significant relationship with food producer prices and aggregate CPI for the entire
period.

This study provides insights for policymakers about the direction of possible causality
between producer prices and consumer prices. However, the results do not necessarily
mean that there is a causal relationship between the variables. The scope of the study
can be extended by time-varying causal relationship analysis, such as time-varying
Granger causality or time-varying multivariate models.

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