A plain-English guide to reading PPI against CPI.

CPI and PPI arrive within 24-48 hours of each other in most months and cover the same broad question (are prices rising?) from different sides of the supply chain. When they agree, the direction earns weight. When they disagree, the market has to decide which side of the chain to trust. This piece is the framework.

The paired analysis today reads Wednesday's PPI print as confirmation of Tuesday's CPI direction. This piece explains why the confirmation matters more than either print in isolation and how to read a mismatch when it lands.

What CPI and PPI measure

CPI is the price a household pays at the register. It is computed from a basket of consumer purchases weighted by household expenditure surveys, with the largest weights on shelter (roughly 34 percent), transportation (roughly 16 percent), food (roughly 14 percent), and medical care (roughly 8 percent).

PPI is the price a producer receives when selling to a business or to a final consumer. It is computed from surveys of about 25,000 establishments across mining, manufacturing, and services. The largest weights are on services (roughly 65 percent since the 2014 methodology change), goods (roughly 32 percent), and construction (roughly 3 percent).

Both are month-over-month series with year-over-year supplements. Both have headline and core variants. Both are seasonally adjusted. But they measure the same inflation from opposite ends of the supply chain: PPI at the upstream, CPI at the downstream.

Why PPI can lead CPI

A producer facing higher input costs passes those costs through to the next buyer. If the buyer is another business, the pass-through shows up in the next PPI print. If the buyer is a household, it shows up in CPI. The typical pass-through lag from PPI to CPI on the consumer-goods side is 2-4 months for manufactured goods, 3-6 months for processed foods, and effectively immediate for energy (because energy is priced by market daily rather than by producer decision).

Services PPI has a shorter lag because the pass-through doesn't involve inventory. A healthcare provider whose supply costs rise this month is likely to raise consumer prices in the same quarter. Services CPI is roughly 65 percent of core CPI, so services PPI has become a more important leading indicator since the 2014 methodology update expanded PPI's services coverage.

The four combinations

Same-week CPI and PPI produce four possible signal combinations. Each has a distinct interpretation.

Combination one: both dovish (Wednesday's print)

Signature. CPI below consensus, PPI below consensus. Both at both headline and core level, ideally.

Reading. The disinflation signal is real and not concentrated in one segment of the supply chain. Producers are receiving lower prices while consumers are paying lower prices. The pass-through is working symmetrically. Central banks that receive this combination should update their policy path toward earlier easing.

Market response typically: 10-year down 8-15bp cumulative over the two days, dollar down 40-80 pips on DXY, gold up 1-2 percent, equities firm.

Base rate for follow-through. Roughly 65 percent of dovish-dovish two-print combinations extend the disinflation trend at the next month's prints. That is the highest reliability of any of the four combinations.

Combination two: both hawkish

Signature. CPI above consensus, PPI above consensus. Both across headline and core.

Reading. The reinflation signal is real and confirmed at both ends of the chain. Producer pipeline pressures are being passed through to consumers. Central banks read this as evidence that the underlying inflation impulse is stronger than the single-print reads suggested. Policy paths shift hawkish.

Market response typically: 10-year up 10-20bp cumulative, dollar up 60-120 pips, gold down 1-3 percent, equities under pressure.

Base rate for follow-through. Roughly 60 percent of hawkish-hawkish combinations extend the reinflation read at next prints.

Combination three: CPI dovish, PPI hawkish

Signature. Consumer prices coming in softer than expected while producer prices remain firm or rise.

Reading. Producers are absorbing input costs rather than passing them through. Margin compression is occurring at the producer level. This is typically a late-cycle signal: producers face rising costs but can't pass them through because consumer demand is soft enough that price increases don't stick.

Market response typically: mixed and slow. Rates markets initially trade the CPI direction (dovish) but partially reverse over the following week as the PPI reading gets absorbed. Dollar response is small.

Base rate for follow-through. Roughly 45 percent of these combinations resolve dovish (CPI wins), 35 percent hawkish (PPI leads), 20 percent indeterminate. Least reliable single-print combination.

Combination four: CPI hawkish, PPI dovish

Signature. Consumer prices firm while producer prices soften.

Reading. Retailer-side margin expansion is occurring. Consumers are paying more while producers are receiving less. Middlemen (retailers, distributors) are capturing the difference. This is often driven by supply-chain concentration or by consumer inability to substitute (medical care, housing, subscription services).

Market response typically: initial hawkish read on CPI that fades within 1-2 weeks as PPI absorbs. This combination has become more common since 2020 as service-sector concentration has increased.

Base rate for follow-through. Roughly 55 percent of these combinations resolve hawkish, 30 percent dovish, 15 percent indeterminate.

What Wednesday's print tells us

Applying the framework to the current combination:

• Tuesday CPI: headline -0.4 percent month-over-month, core 0.0 percent. Both at or below consensus. Dovish.
• Wednesday PPI: headline 0.0 percent, core 0.0 percent. Both below the 0.2 percent consensus. Dovish.

This is combination one (dovish-dovish). The 65 percent base rate for follow-through into next month's prints is the highest of any combination. The disinflation interpretation earns the maximum weight the framework allows.

Additional confirmation: services PPI came in at -0.1 percent, the first negative print of 2026. Services PPI leads services CPI by 1-3 months. That specific line item is a leading indicator that the services inflation which has powered core CPI stickiness is likely to soften in August and September.

Common misreadings

Weighting the combinations by consensus magnitude. A PPI print 30bp below consensus is not automatically twice as informative as one 15bp below. The consensus tends to underprice tail moves; a 30bp surprise is often driven by one volatile subcomponent (energy, food) that reverses next month. Read component breakdowns before scaling the signal by magnitude.

Trading the PPI headline in isolation. Headline PPI includes energy and food, which move on supply shocks unrelated to broad inflation. Core PPI (excluding food and energy) is the more relevant series for gauging underlying producer-level pressures. Trade the core.

Assuming the combination applies to the next print. The base rates cited above (65 percent, 60 percent, etc.) are historical averages over decades. Individual print pairs can diverge because of one-off factors (Amazon Prime Day distortion in July CPI, healthcare category rebasing, seasonal-adjustment revisions). The framework is a probability distribution, not a forecast.

Where this fits

The PPI-CPI combination framework sits alongside the other inflation reference notes:

• A plain-English guide to CPI components. The shelter and services breakdowns that drive month-to-month CPI signal.
• A plain-English guide to PCE versus CPI. Why the Fed targets PCE while markets watch CPI, and how the two differ.
• A plain-English guide to a soft CPI against a hawkish Fed. How the Warsh-CPI conflict from Tuesday resolves under different follow-through patterns.
• A plain-English guide to inflation breakevens. The TIPS-implied inflation expectations that trade against the actual prints.

Together they cover the inflation-print machinery from four different angles: CPI mechanics, PCE-CPI differences, cross-catalyst reactions, and market-implied expectations. The PPI-CPI framework is the specific piece that turns two consecutive prints into a confirmed or contested direction signal.