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Measuring inflation when prices change slowly

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  • D'Elia, Enrico

Abstract

Inflation is currently low and falling in the OECD area. A side effect of these facts is that they made harder the task of price index compilers. First of all, researchers and analysts are moving their attention from aggregate price dynamics to price differentials (among products, markets, consumers groups, and countries), since relative differences among single prices did not tend to narrow as inflation falls. Thus the distribution of price changes (and underlying price dispersion) has become more and more relevant for users. In addition, important factors, such as market segmentation and consumers stratification, should be taken into account both in CPIs and in harmonised indexes, above and beyond usual “consumption purpose” of goods and services. For instance, the relation between price level, on the one side, and price dynamics cannot be disregarded Finally, the “trivial” problem of rounding should be considered. This paper provides some empirical evidence concerning price changes dispersion and its effects on economic analysis and the dependency of inflation from initial price level.

Suggested Citation

  • D'Elia, Enrico, 2001. "Measuring inflation when prices change slowly," MPRA Paper 40009, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:40009
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    More about this item

    Keywords

    Consumer price index; Price dispersion; Rounding;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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