Calculation And Analysis Of China’s Core Inflation

The consumer price index(CPI) is an economic indicators which is commonly used tomeasure inflation. Due to the impact of temporary shocks, the consumer price index CPI mayIncrease or decrease and affect the Government’s macro-policy formulation andimplementation, also mislead the price expectations of the public. Therefore, the core inflationwhich removes the temporary shocks(core CPI) has become very important. The paper usesthe SVAR model and the measurement based on the survey method for calculating the coreCPI from January 2001 to December 2014 respectively. The measurement is divided into thefood weight estimates method and the OLS regression estimates based on historical data.There are two weights of food weight estimates and the paper receives a total of four core CPIseries results. The paper makes a qualitative and quantitative analysis of their statisticalcharacteristics and unbiasedness, volatility and trend tracking ability, predictive ability,monetary policy decision-making ability and the general nature.Through analysis and comparison we find that,(1) Core CPI basing on SVAR model caneither reduce the crest or pick up the peak valley of CPI, however core CPI basing onExclusion Method can only reduce the crest of CPI.(2) Core CPI basing on food expenditureproportion method and core CPI basing on OLS method have similar statistical characteristics.(3) Core CPI basing on SVAR is better than core CPI basing on Exclusion Method inunbiasedness, trend tracking capability, and policy reference capability.(4) Core CPI basingon SVAR Volatility is greater than the Exclusion Method, but the latter is better than theformer in predictive ability. Furthermore this paper compares the four core CPI basing on thetwo methods on Timeliness, comprehensible, robustness, theoretical basis and perceptiveness,and find that each have advantages and disadvantages, we should select the correspondingmeasure results according to the specific needs. For instance when focusing on policydecision-making reference, we suggest to use core CPI basing on SVAR model.The main contribution of the paper are(1) In consideration of China’s monetary policyintermediary goal is money supply, meanwhile food weight is particularly high, so we add M2 and food CPI in the bivariate model commonly used to calculate china’s core CPI.(2) Thispaper also uses Exclusion Method to calculate the core CPI, then compares the core CPIsfrom various aspects, and give advises according to the adaptation situation of each core CPI.