Norges Bank

Staff Memo

Indicators of underlying inflation in Norway

Eilert Husabø
Staff Memo

Norges Bank operates a flexible inflation targeting regime. Under such a regime, monetary policy does not seek to steer current inflation towards the inflation target, but is oriented towards moving the forecasts for future inflation towards the target.

Under a flexible inflation targeting regime, the central bank seeks to "look through" temporary changes in inflation. At a given point in time, it can be difficult to determine which price changes are permanent and which changes are transitory. Indicators of underlying inflation can be helpful. The purpose of these indicators is to have a real-time measure of trend CPI inflation.

In this article, different indicators of underlying inflation are evaluated empirically. The conclusion is that there is no single indicator that fully measures underlying inflation, in the sense that it performs best in every category of the evaluation. This suggests that the central bank should monitor a range of indicators. Determining the rate of underlying inflation at any given point in time is ultimately a matter for the central bank's judgement.

Staff Memos present reports and documentation written by staff members and affiliates of Norges Bank, the central bank of Norway. Views and conclusions expressed in Staff Memos should not be taken to represent the views of Norges Bank.

ISSN 1504-2596 (online)

Published 20 December 2017 16:40
Published 20 December 2017 16:40