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Thai Inflation Dynamics: A View from Micro CPI Data

Tosapol Apaitan (), Piti Disyatat () and Pym Manopimoke

PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: This paper examines the patterns of price adjustment at the micro level in order to further our understanding of price rigidity at the aggregate level. We highlight 5 stylized facts: 1) Prices change infrequently with a mean duration of approximately 4 to 7 months between price changes; 2) Price decreases are common accounting for roughly 45 percent of all price changes; 3) Price changes, both increases and decreases, are sizable compared to the prevailing in ation rate; 4) The size of price changes covaries strongly with the rate of in ation, whereas the fraction of items changing prices does not; and 5) There is signi cant dispersion in price levels as well as in the synchronicity of price changes across geographical regions. Based on a dynamic factor model, we also utilize prices at the disaggregated level to perform an in ation decomposition to understand the underlying driving factors of in ation. The key ndings are: 1) Prices at the micro level are driven mainly by idiosyncratic shocks but these shocks become less important for CPI in ation at the aggregate level; 2) Pure in ation which drives long-term price movements in Thailand is responsible for approximately 10 percent of overall price movements; 3) More than half of all within-quarter uctuations can be classi ed as relative price changes in response to aggregate shocks; 4) The short-run in ation-output tradeoff which appears weak in aggregate data becomes much stronger once volatile idiosyncratic price changes are removed.

Keywords: Factor model; In ation; Price rigidity; Price setting; Relative prices; Phillips curve. (search for similar items in EconPapers)
JEL-codes: C40 C25 D40 E31 (search for similar items in EconPapers)
Pages: 44 page
Date: 2018-05, Revised 2018-05
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