ABSTRACT
This paper aims to study the relationship between producer price index (PPI) and consumer price index (CPI), as well as between components of producer prices and components of consumer prices in Azerbaijan, by using monthly data covering the period from March 2004 to June 2023. Applying wavelet analysis approach, I find that there is a mixed relationship between CPI and PPI, and co-movement is observed mainly at medium and low frequencies. The results reveal that although there is a weak co-movement between aggregate PPI and CPI, a significant and strong relationship exists between food PPI and aggregate CPI, as well as between food PPI and food CPI. Additionally, producer prices of agricultural products demonstrates co-movement with consumer prices in certain periods. In terms of lead-lag relationship, producer prices lead consumer prices. Although wavelet methodology does not necessarily determine causality, this study provides insights for policymakers about the direction of possible causality between producer prices and consumer prices.

Keywords: Producer Price Index, Consumer Price Index, Wavelet analysis, agricultural products, relationship

JEL Codes: E31, E19, E39