International measures of common inflation
In this paper Nir et al. propose alternative measures of inflation for Canada, the Euro area, Japan, United Kingdom (UK), Brazil, and Mexico that better represent structural inflationary movements. The basic assumption is that each component of the inflation index combines two driving forces: The first is a trend that is common across all components; the second comes from idiosyncratic components that capture one-off changes, sector-specific developments, and measurement errors. From a policymaker point of view, disentangling these two forces is important, as the first may be sensitive to policy actions while the second may not. They employ a dynamic factor model (DFM) to estimate these two forces and aggregate the effects of the first in what they call common inflation using data for selected advanced and emerging economies.
As it is less prone to temporary shocks and measurement errors, common inflation captures the connection between prices, the real economy, and monetary policy, qualifying it as a powerful concept for policymakers to focus on. We also show that these new measures perform better than traditional core inflation series in forecasting medium-term headline inflation (two to three years ahead). Of particular relevance to the current situation, the common inflation measures suggest that the deflationary period and eventual rebound due to the COVID-19 pandemic were mainly idiosyncratic factors with only muted effects on underlying structural inflation.
International Measures of Common Inflation
Authors: Eli Nir, Flora Haberkorn, Danilo Cascaldi-Garcia
From: Federal Reserve Board
A One-Stop Source for global inflation
The World Bank’s Prospects Group has constructed a global database of inflation. The database covers up to 196 countries over the period 1970-2021, and includes in three frequencies (annual, quarterly, and monthly) six measures of inflation : Headline consumer price index (CPI) inflation; Food CPI inflation; Energy CPI inflation; Core CPI inflation; Producer price index inflation; Gross domestic product deflator. The database also provides aggregate inflation for global, advanced-economy, and emerging market and developing economies as well as measures of global commodity prices.
Ha et al. in this paper also show three potential applications of the database: the evolution of global inflation since 1970, the behavior of inflation during global recessions, and the role of common factors in explaining movements in different measures of inflation.
One-Stop Source – A Global Database of Inflation
Authors: Jongrim Ha, M. Ayhan Kose, Franziska Ohnsorge
From: World Bank
