Research Feature - September 2023

Underlying inflation and asymmetric risks.

Hervé Le Bihan, Danilo Leiva-León and Matías PacceOpens in new window

Abstract. We propose a new measure of underlying inflation that provides real-time information on asymmetric risks in the inflation outlook. The new indicator is based on a multivariate regime-switching framework estimated using disaggregated sub-components of euro area Harmonized Index of Consumer Prices (HICP) and has several additional advantages. First, it can swiftly infer abrupt changes in underlying inflation. Second, it helps track turning points in underlying inflation on a timely basis. Third, the proposed indicator also performs satisfactorily vis-à-vis several criteria relevant to inflation monitoring. Click here File PDF: Opens in new window (175 KB).