A Novel Divide-and-Conquer Model for CPI Prediction Using ARIMA, Gray Model and BPNN

Abstract

This paper proposes a novel divide-and-conquer model for CPI predictionwith the existing compilation method of the Consumer Price Index (CPI) in China. Historical national CPI time series is preliminary divided into eight sub-indexes includingfood, articles for smoking and drinking, clothing, household facilities, articles and maintenance services, health care and personal articles, transportation and communication, recreation, education and culture articles and services, and residence. Three models including back propagation neural network (BPNN) model, grey forecasting model (GM (1, 1)) and autoregressive integrated moving average (ARIMA) model are established to predict each sub-index, respectively.Then the best predicting result among the three models’ for each sub-index is identified. To further improve the performance, special modification in predicting method is done to sub-CPIs whose forecasting results are not satisfying enough. After improvement and error adjustment, we get the advanced predicting results of the sub-CPIs.Eventually, the best predicting results of each sub-index are integrated to form the forecasting results of the national CPI. Empirical analysis demonstrates that the accuracy and stability of the introduced method in this paper is better than many commonly adopted forecasting methods, which indicates the proposed method is an effective and alternative one for national CPI prediction in China.