Long Term Perspective
After removing volatile food and energy prices, the PPI rose more slowly than the CPI on a year-over-year basis until late 2004 - early 2005. This is a rare occurrence. Usually, the CPI posts larger year-over-year gains because it consists of services, where prices are stickier and take a longer time to change. The PPI consists of goods only, where competitive pressures are stronger and price changes are more flexible. The normal pattern resumed in late 2005 and since as a slowing economy has had more impact on the PPI than on the CPI which is still stubbornly high.

Short Term Perspective
Excluding the volatile components, the PPI has been moderating since spring 2006 while the CPI is only as of October showing signs of slowing, and only marginally. The CPI remains well above the Fed's comfort zone, even if one believes that the CPI overestimates inflationary pressures.