Improving the Median CPI: Maximal Disaggregation Isn't Necessarily Optimal

Christian Garciga, Randal Verbrugge and Saeed Zaman

No 24-02R2, Working Papers from Federal Reserve Bank of Cleveland

Abstract: Median Consumer Price Indexes have proved useful in many contexts and are used worldwide as key policymaking inputs. Historically, US Median CPI improvements involved increasing the CPI component level of disaggregation; one might reasonably assume that further disaggregation would lead to further improvements. We theoretically demonstrate herein: not necessarily. We then empirically explore the impact of further disaggregation. Substantially more disaggregation in the shelter indexes and slightly more disaggregation in the remaining components improve the ability of Median CPI to track the medium-term trend in CPI inflation and its predictive power for future CPI movements. This new Median CPI suggests that trend inflation was lower pre-pandemic, accelerated faster in 2021, and decelerated faster after 2022.

Keywords: inflation measurement; median CPI; trend inflation; disaggregates of inflation (search for similar items in EconPapers)
JEL-codes: C8 E31 E37 E52 (search for similar items in EconPapers)
Pages: 51
Date: 2024-01-04, Revised 2026-02-03
New Economics Papers: this item is included in nep-ban and nep-mon
Note: Second revision of The Effect of Component Disaggregation on Measures of the Median and Trimmed-Mean CPI (WP 24-02).; Online appendix available for download at https://doi.org/10.26509/frbc-wp-202402r2.
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DOI: 10.26509/frbc-wp-202402r2

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