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Indicators of the general price level and inflation

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  • Zsolt Becsi

Abstract

This article examines whether price indexes, such as the CPI, the PPI, and the implicit price deflator for GDP (PGDP), tell a consistent story about the general price level and inflation rate. To this end, Zsolt Becsi analyzes the time series properties of these indexes. He finds that the PGDP has a stable long-term relationship with both of the other price indexes. Some evidence suggests that PGDP and CPI inflation have common long-run trends, while PPI inflation has no discernible stable long-run relationship with either PGDP or CPI inflation. ; Some theories suggest that the price level relevant for monetary policy is broader than price indexes of final goods and services such as the PGDP. This article investigates whether the PGDP captures movements in other price or inflation series. There is weak evidence that the PGDP shares common trends with the price levels and inflation rates of some intermediate goods and assets. Overall, these results suggest that PGDP makes a good indicator of the general price level for monetary policy because it reflects shocks to a broad range of other series.

Suggested Citation

  • Zsolt Becsi, 1994. "Indicators of the general price level and inflation," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 27-39.
    • Handle: RePEc:fip:fedder:y:1994:i:qiv:p:27-39
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    Cited by:

    1. Mark A. Wynne, 2008. "How should central banks define price stability?," Globalization Institute Working Papers 08, Federal Reserve Bank of Dallas.
    2. Iris Claus, 1997. "A Measure of Underlying Inflation in the United States," Staff Working Papers 97-20, Bank of Canada.

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    Keywords

    Inflation (Finance); Prices;

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