Interstate Statistical Committee of the Commonwealth of Independent States (CIS STAT) Methodological approaches to measuring core inflation in the CIS countries Irina Goryacheva Head of Economic statistics department May 2014 Geneva

1.Core inflation and a system of consumer price indices. 2.CPI and core CPI (core inflation). 3. Main methodological approaches to measure core inflation in CIS countries. 4. Various methods to measure core inflation. 5. Core inflation measure. 2 Main issues

3 Core inflation and a system of consumer price indices At present in the majority of the CIS countries, various consumer price indices are being constructed and applied to reflect price dynamics on the consumer markets of these countries. These indices are: Overall CPI CPI for goods, CPI for food products, CPI for nonfood products, CPI for services, other more disaggregated price indices core CPI or core inflation

4 CPI and core CPI (core inflation) A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households. It is a ratio of the cost of a fixed basket of goods and services in prices of the reference period to their cost in prices of the previous (base) period Unlike CPI, the measure of core inflation being a component of the overall CPI, excludes short term price shocks caused by certain factors of an administrative, one time event, or seasonal character.

5. Main methodological approaches to measure core inflation in CIS countries The calculation of the core inflation measure assumes the following steps: - composing the basket of products on the basis of a basket of consumer goods and services used for the compilation of the all-item CPI with the exclusion of certain product groups and goods and services whose prices are to a large extent regulated and/or are subject to seasonal fluctuations; - determining weights on the basis of consumption expenditure breakdown for the base year (previous year in many countries) obtained from household budget survey and used for all-item CPI with the exclusion of items not used in the core CPI calculation. - computing the core inflation measure (aggregation algorithms are the same as for CPI calculation).

Core inflation, year t, country N growth, % 6. Various methods to measure core inflation To the previous month JulAugSeptOctNovDec CPI0,170,240,190,270,520,66 Core CPI with exclusion of items: fruit, vegetables, gasoline, and coal0,210,340,440,340,480,61 fruit and vegetables0,200,340,430,400,480,61 fruit and vegetables, utility and housing services, railroad transport, communication, gasoline, diesel fuel, coal 0,210,290,540,410,490,63 Core CPI obtained by trimming: five highest rises and declines in prices0,150,210,26 0,400,66 8% of highest rises and declines in prices0,140,190,230,240,340,49 all but the median0,030,100,140,160,220,36

7. Users’ requirements for the core inflation measure Information on the core inflation should be available not later than official consumer price index data. Timeliness is important to explain monetary policy to economic agents. The calculation technique for obtaining the core inflation measure should make it possible to provide timely and reliable information on price dynamics. Therefore, this technique should be clear and reliable. The calculation of the core inflation measure using the exclusion method can be done simultaneously with official CPI, something which favors this method.

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