Relative Prices, Inflation and Core Inflation

Author/Editor:

Scott Roger

Publication Date:

March 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Empirical evidence on the distribution of relative price changes almost invariably reveals high kurtosis and a tendency toward right-skewness. Simple mixed distribution models including volatile and infrequently adjusted prices can account for these and other common features, such as correlation between the mean and variance of relative prices. In such circumstances, robust measures of central tendency are likely to outperform the mean or standard measures of “core” inflation as indicators of generalized inflation. The analysis also supports the use of geometric averaging in CPI construction and the targeting of the geometric mean inflation rate rather than the Laspeyres mean.

Series:

Working Paper No. 2000/058

Subject:

Consumer price indexes Consumer prices Inflation Population and demographics Price indexes Prices

English

Publication Date:

March 1, 2000

ISBN/ISSN:

9781451847857/1018-5941

Stock No:

WPIEA0582000

Pages:

43

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