What I Read This Week… 1/ The Bureau of Labor Statistics reported that CPI increased 2.7% over the past year and 0.2% in July, broadly in line with expectations and signaling that inflation at the household level is steady. By contrast, PPI (producer prices) increased 3.3% year over year, with a 0.9% monthly increase that was the largest in several years and well above forecasts of 0.3% to 0.4%. What’s going on? CPI is calculated from a representative basket of goods and services, weighted by typical household spending, while PPI measures the prices producers and wholesalers receive for goods and services, from raw materials to finished products. The distinction is that CPI reflects the consumer’s perspective, what households are paying, while PPI reflects the producer’s perspective, what businesses are charging or receiving. Because producer costs often flow through to consumers, a strong PPI can foreshadow upward pressure on CPI, though the link is not one-to-one as businesses can absorb costs rather than passing them along. Whether businesses absorb higher costs or pass them on depends on their pricing power, the strength of demand, competitive pressures, their margins, and whether they see the cost increase as temporary or lasting. It is also important to note that PPI figures are often revised in subsequent months as more data are collected, while CPI data are rarely revised beyond methodological changes. For CPI, BLS field staff directly record prices from stores, service providers, landlords, and utility companies each month, and nearly all of that data arrive before the release deadline, so the numbers are locked in. For PPI, the BLS depends more on businesses submitting survey forms about what they charged for goods and services, and because not all firms respond in time, the initial release is based on partial data that get updated as late reports come in. In any case, while consumer inflation is stable, the sharp jump in producer prices bears watching, as it may hint at higher CPI in the upcoming months.