Disaggregate Evidence on the Persistence of Consumer Price Inflation

By Todd E. Clark
December 2003 
RWP 03-11
Research Division 
Federal Reserve Bank of Kansas City 

Abstract

      This paper uses disaggregate inflation data spanning all of consumption to examine: (i) the persistence of disaggregate inflation relative to aggregate inflation; (ii) the distribution of persistence across consumption sectors; and (iii) whether persistence has changed. Assuming mean inflation to be unchanged within samples, the average persistence of disaggregate inflation is consistently below aggregate persistence. Taking into account an early 1990s shift in mean inflation identified by break tests—including tests applied to systems of disaggregate equations—yields much lower estimates of both aggregate and disaggregate persistence for 1984-02. But with the mean break taken into account, average disaggregate persistence is actually as great as aggregate inflation persistence. A factor model provides a natural framework for interpreting the relationship between aggregate and disaggregate persistence.

Keywords: inflation dynamics; structural breaks; relative prices; factor models

JEL Codes: E31, E52, C22

Todd Clark is a vice president and economist at the Federal Reserve Bank of Kansas City.  The views expressed herein are solely those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System. The author gratefully acknowledges research assistance from Taisuke Nakata and the helpful comments of: Ted Juhl, Max Marcellino, Serena Ng, Mototsugu Shintani; seminar participants at the Federal Reserve Bank of Kansas City and University of Michigan; and participants of the 2003 MEG meetings.

Clark e-mail:  todd.e.clark@kc.frb.org

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