Inflation Dynamics in Advanced Economies: A Decomposition into Cyclical and Non-Cyclical Factors

May 13, 2022

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Weicheng Lian, and Andreas Freitag. Inflation Dynamics in Advanced Economies: A Decomposition into Cyclical and Non-Cyclical Factors, (USA: International Monetary Fund, 2022) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Inflation and unemployment rate were largely disconnected between 2000 and 2019 in advanced economies. We decompose core inflation into two parts based on the cyclical sensitivity of CPI components and document several salient facts: (i) both the cyclical and non-cyclical parts had surges across advaced economies in 2011, when unemployment rates had limited changes; (ii) the non-cyclical part had a downward trend between 2012 and 2019, which existed across countries, sectors, goods, and services; (iii) global indexes such as oil price, shipping costs, and a global supply chain pressure index do not explain the downward trend; and (iv) the cyclical part, after controlling for the impact of economic slack, also had a downward trend between 2012 and 2019. These patterns help disentangle competing explanations for the disconnect between inflation and unemployment rate. The approach has potential to help understand forces shaping price pressures during the pandemic and in the post-pandemic period ahead.

Subject: Consumer price indexes, Financial crises, Global financial crisis of 2008-2009, Inflation, Labor, Oil prices, Prices, Unemployment rate

Keywords: Consumer price indexes, Core cyclical inflation, Global, Global financial crisis of 2008-2009, Inflation, Inflation dynamics, Inflation expectation, Inflation surge, Missing Disinflation, Missing Reflation, Oil prices, Phillips curve, Pressure index, Shipping cost, Slack, Unemployment rate

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/091
Stock No:

WPIEA2022091
ISBN:

9798400210976
ISSN:

1018-5941

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