shocks accounted for one-half more of core CPI inflation variation (26 percent) than of headline CPI or PPI inflation (16-17 percent).<sup>19</sup> In contrast, the composition of PPI inflation variance, in particular the sizeable role of oil price shocks, was similar to that of headline CPI inflation. This may partly be driven by the almost equal share of energy in consumption and production: the share of energy in final-demand PPI is nearly 5.9 percent and the share of energy products in the CPI basket is 6 percent (according to the U.S. Bureau of Labor Statistics, as of end-2022). The importance of energy in producer prices becomes even greater when considering inputoutput linkages: the shares of fuels and related products in the intermediate-demand PPI and commodity PPI are 38 percent and 22 percent, respectively.<sup>20</sup> An exception were the somewhat larger shares of global supply shocks, possibly reflecting propagation through global supply chains, as well as somewhat smaller share of global demand shocks, possibly reflecting the ability to adjust to global demand shocks through diversified supply chains. Although the contribution of supply shocks to PPI inflation variance (23 percent) was somewhat higher than that to headline CPI inflation, it was still only about half of that to core CPI inflation (41 percent).<sup>21</sup> This suggests much stronger propagation of global supply shocks through global value chains for the nonenergy and non-food goods and services that form the core CPI than for more volatile components that are included in the PPI.

These differences between the main sources of shocks to headline and core CPI and PPI inflation also displayed some variations over time. We repeat the estimations for our three sub-sample periods, 1970-85, 1986-2000, and 2001-22 (Table A3). The prominence of global supply shocks and lesser role of global demand and oil price shocks that differentiated core CPI from headline CPI inflation variation over the full period were phenomena that only emerged in the second subperiod (for oil price shocks) and third subperiod (for global supply and demand shocks). In the first subperiod, the sources of headline and core CPI inflation variation were more similar than in the second and third subperiods. For PPI inflation variation, the larger role of global supply shocks and smaller role of global demand shocks than for headline CPI inflation were features of the third subperiod that did not hold in the first or second subperiod.

> 19 This result is in line with Forbes (2019) and Del Negro et al. (2013). For instance, based on a crosscountry estimate of an augmented Philipps curve, Forbes (2019) reports that oil prices had a significant impact on headline CPI inflation, while their impact on core CPI inflation was statistically and economically insignificant. In a DSGE model calibrated for the United States, Del Negro et al. (2013) report that supply (including wage and productivity) shocks and demand (including risk spreads and investment) shocks were the main drivers of core inflation variation.

> 20 The similar role of oil price shocks in driving PPI and CPI inflation variation is broadly consistent with the findings in Ha, Kose, and Ohnsorge (2023). They report roughly equal contributions by global factors, which are associated with major oil price swings, to domestic CPI and PPI inflation. They argue that this similarity may partly reflect the roughly equal shares of tradable goods and services in PPI (54 percent) and headline CPI (53 percent), in contrast to core CPI (15 percent).

> 21 This is in line with findings from a structural VAR model for the United States and Germany by Aucremanne and Wouters (1999) who show that supply shocks explain a sizeable (40 percent) portion of core inflation variation in both countries while other types of shocks (demand, oil price, monetary, and exchange rate shocks) account for smaller shares.

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