A New Core Inflation Indicator for New Zealand

by Domenico Giannone^a and Troy D. Matheson^b

Abstract

This paper introduces a new indicator of core inflation for New Zealand, estimated using a dynamic factor model and disaggregate consumer price data. Using disaggregate consumer price data, we can directly compare the predictive performance of our core indicator with a wide range of other "core inflation" measures estimated from disaggregate consumer prices, such as the weighted median and the trimmed mean. The mediumterm inflation target of the Reserve Bank of New Zealand is used as a guide to define our target measure of core inflation – a centered two-year moving average of past and future inflation outcomes. We find that our indicator produces relatively good estimates of this characterization of core inflation when compared with estimates derived from a range of other models.

JEL Codes: C32, E31, E32, E52.

 
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