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Introducing persistence in EMU inflation analysis

Thu, Sep 25 2008, 12:02 GMT
by Yapi Kredi Bank Economic Research Department

Yapi Kredi Bank


  • ● We add a new tool to our inflation-watch instruments for the euro area: a persistence-weighted (PW) measure of core inflation. 

  • ● Contrary to standard measures of core inflation that strip out the most erratic and volatile components, PW core inflation gives more weight to the items of the HICP basket displaying a higher degree of persistence. 

  • ● This methodology delivers a core measure that allows capturing the more lasting component of price increases. Therefore, the PW core inflation provides some important information for the conduct of monetary policy, even though headline HICP remains the single most important consumer price gauge to which the ECB reacts. 

  • ● Starting in late-summer 2007, PW core inflation has shown a strong acceleration that helps understand why the ECB hiked interest rates in July despite mounting evidence of slowing growth and the fact that traditional measures of core inflation appeared generally well behaved.


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Yapi Kredi  | Yapi ve Kredi Plaza D Blok, Levent 80620 Istanbul
http://www.yapikredi.com | research@ykb.com

Legal disclaimer and risk disclosure

This document is prepared by the Economic Research Department of Yapi Kredi Bank A.S by using official data. No responsibility is assumed for the accuracy of the information given in the document although utmost care has been taken in their compilation and processing.

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