Weighted Median Inflation: Is this Core Inflation?

Abstract

This paper investigates core inflation defined as the best predictor of US inflation. I compare forecasts obtained using the weighted median consumer price index inflation rate, a trimmed mean consumer price index inflation rate, the consumer price index inflation rate and the consumer price index less food and energy inflation rate. The latter two often have been considered informative about future inflation movements. The unconditional predictions using the weighted median are more accurate than those made with the other measures. Moreover, the weighted median is a better predictor even when conditioning on real variables. These results support that the weighted median is a good measure of core inflation.

Keywords: Core Inflation, Forecasting Inflation

JEL Classification: E31, E37