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  • Analytický komentár

A note on statistical measures of underlying inflation

  • Vávra Marián
3 apr 2019
The price stability objective followed by modern central banks is to maintain annual inflation rates around, say, 2 % in the medium term. Since the HICP comprises hundreds of individual price items, inflation development is often distorted by significant, short-term, and reversible fluctuations of a small group of price sub-components (e.g. volatile energy and/or food prices, temporary large seasonal sales or seasonal price hikes) with a limited information value for monetary policy in practice. To help distinguish between a price signal, relevant for central bankers, and price noise, many central banks routinely monitor various statistical measures of core inflation. This note evaluates some of the popular measures regarding their ability to forecast headline inflation in Slovakia. Our recommendation is to monitor persistence-weighted (PW) and exclusion-based (HICPX) core inflation measures – both having good statistical properties and performing reasonably well in other aspects.