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Constructing U.K. Core Inflation

Author

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  • Terence C. Mills

    (School of Business and Economics, Loughborough University, Leicestershire, LE11 3TU, UK.)

Abstract

The recent volatile behaviour of U.K. inflation has been officially attributed to a sequence of “unusual” price changes, prompting renewed interest in the construction of measures of “core inflation”, from which such unusual price changes may be down-weighted or even excluded. This paper proposes a new approach to constructing core inflation based on detailed analysis of the temporal stochastic structure of the individual prices underlying a particular index. This approach is illustrated using the section structure of the U.K. retail price index (RPI), providing a number of measures of core inflation that can be automatically calculated and updated to provide both a current assessment and forecasts of the underlying inflation rate in the U.K.

Suggested Citation

  • Terence C. Mills, 2013. "Constructing U.K. Core Inflation," Econometrics, MDPI, vol. 1(1), pages 1-21, April.
    • Handle: RePEc:gam:jecnmx:v:1:y:2013:i:1:p:32-52:d:25283
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    References listed on IDEAS

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