Adjusting Median and Trimmed-Mean Inflation Rates for Bias Based on Skewness

Robert Rich, Randal Verbrugge and Saeed Zaman

Economic Commentary, 2022, vol. 2022, issue 05, 7

Abstract: Median and trimmed-mean inflation rates tend to be useful estimates of trend inflation over long periods, but they can exhibit persistent departures from the underlying trend over shorter horizons. In this Commentary, we document that the extent of this bias is related to the degree of skewness in the distribution of price changes. The shift in the skewness of the cross-sectional price-change distribution during the pandemic means that median PCE and trimmed-mean PCE inflation rates have recently been understating the trend in PCE inflation by about 15 and 35 basis points, respectively.

Keywords: inflation (search for similar items in EconPapers)
Date: 2022
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DOI: 10.26509/frbc-ec-202205

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