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Measures of underlying inflation for the euro area

Michael Ehrmann (), Gianluigi Ferrucci, Michele Lenza () and Derry O'Brien

Economic Bulletin Articles, 2018, vol. 4

Abstract: Headline inflation can be noisy, blurring the signal on the medium-term inflationary pressure relevant for monetary policy. To help distinguish signal from noise in the data, central banks monitor measures of underlying inflation. As there are many ways of measuring underlying inflation, it is important to understand the properties of the various indicators and what factors may account for any divergence between them. This article describes in detail the measures of underlying inflation typically used at the ECB and evaluates them against a set of empirical criteria. Our results suggest that no one measure of underlying inflation is superior in all situations as the performance of the indicators varies over time. In practice, each indicator comes with merits and shortcomings, which calls for monitoring the full range of measures of underlying inflation. JEL Classification: C52, C82, E31

Keywords: HICP; measures of underlying inflation; medium term; price index; signal (search for similar items in EconPapers)
Date: 2018-06
Note: 203739
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