Component Of Inflation Research Articles

Energy prices and the structure of inflation in European Union countries

Abstract Since 2022, in almost every inflation category, a strong divergence in price dynamics among the EU countries has become visible. The first aim of this paper is to assess the impact of changes in energy prices on the differentiation in price dynamics in individual inflation categories in EU countries. The second aim is to isolate those components of inflation that have significantly differentiated the countries in the crisis year of 2022. The research was conducted based on the vector-autoregressive model, the Granger causality test, cluster analysis and analysis of variance. It can be concluded that there is a causal relationship between energy prices and the differentiation in the price growth rate in certain inflation categories. In 2022, the EU member states were divided into two quite distinct clusters. This article adds value to current research by taking into account the level of variation in the inflation structure among EU countries.

Wages and Inflation in the Euro Area

Abstract We investigate the relationship between the four main inflation components (services, NEIG, energy, and food) and wages in the euro area. Using a panel vector autoregressive (PVAR) model for the 2002q1–2021q4 period, we find that wages positively respond to shocks in services inflation, energy inflation and GDP growth, with the first being the largest. In addition, services inflation is affected by all other inflation categories. The results are in line with the inflation path since 2022, following the food and energy price surges. Implications for policy include a feedback loop between wages and services inflation that lasts at least a year, with a possible reinforcement effect stemming from inflation expectations. Similar to US evidence, we also find that the unemployment rate does not affect wage developments in a Phillips curve setup. (JEL codes: J30, E24, E31)

RETHINKING THE PHILLIPS CURVE IN TÜRKİYE: NEW EVIDENCE FROM THE FREQUENCY DOMAIN

This study aims to investigate the short- and long-run relationship between the inflation rate, which has come to the fore after a long break all over the world, and the unemployment rate for the Turkish economy. For this purpose, the relationship between the two variables is analyzed using a causality test in the frequency domain, with monthly data for the period 2005:01-2023:03. The symmetric findings of the test indicate the existence of a unidirectional and short-run causal relationship from unemployment to inflation. The asymmetric findings of the test provide two important pieces of evidence. The first of these is the existence of a unidirectional and long-run causal relationship from the positive component of unemployment to the negative component of inflation. The second is the existence of a unidirectional, short- and long-run causal relationship from the negative component of unemployment to the positive component of inflation. These findings confirm the trade-off predicted by the Phillips Curve. It is also important for policymakers to try to increase productivity by making structural and institutional reforms in the labor market, as far as settling for a moderate inflation rate while struggling with inflation and unemployment problems.

The Effect of Interest and Inflation Rates on Stock Returns: Quantile Regression Analysis for Türkiye

According to financial theory, there is an inverse relationship between interest rate and stock returns and prices. In the framework of the Liquidity Preference Theory, the rise in interest rates causes the money to move towards higher interest rates, so demand for stock market decreases and returns fall. The behaviour of stock prices on interest rates and inflation has been investigated by various time series analysis methods. However, in this study, the subject is handled in a different approach by using the Quantile Regression (QR) method. In the study, nominal interest rate is decomposed into real interest rate and inflation components and effects on stock prices are examined for the period January 2013 - July 2023 separately for services, financial, industrial and technology sector indices. When it comes to the impact of nominal and real interest rates on returns in QR estimates, it is seen that the service and industrial sectors differ in terms of both tail and sign. The similarities between Least Squares estimates and QR estimates are striking. However, the effect of volatility in variables on the differentiation in relationships is also an issue that should be emphasized.

Forecasting Inflation with the New Keynesian Phillips Curve: Frequencies Matter*

AbstractWe forecast US inflation with a new Keynesian Phillips curve (NKPC) in the frequency domain. Our method consists of decomposing the time series of inflation and its NKPC predictors into several frequency bands, forecasting separately each frequency component of inflation, and then summing up those forecasts to obtain the forecast for aggregate inflation. We find that (i) accurately forecasting the low frequency of inflation is, on average, crucial to successfully forecast inflation; (ii) our NKPC low‐frequency forecast model consistently and significantly outperforms the time‐series NKPC and standard benchmark models; (iii) the low frequencies of inflation expectations and unemployment are the key predictors; and (iv) optimally switching on / off the forecasts of each frequency components of inflation at each period allows to outstandingly track inflation and show that all frequencies of inflation matter.

JUE insight: Differences in rent growth by income from 1985 to 2021 and implications for inflation

Shelter is a large share of household expenditures and therefore has a large weight in inflation measurement. Because rich and poor households tend to make different housing and location choices, does the shelter component of inflation differ across the income distribution? I calculate rent growth for households in each quintile of the income distribution from 1985 to 2021 and find modestly lower rent growth for lower-income groups. However, because lower-income households spend a larger fraction of total expenditures on housing, I find little difference across groups in headline inflation. Therefore, different housing and location choices have not generated materially different shelter components of inflation across the income distribution.

What Do Long Data Tell Us about the Permanent Component of Inflation?

Is postwar data enough to estimate the permanent component of inflation? We find that it is not for episodes of sudden and large inflation spikes like the one observed after the COVID-19 pandemic because such episodes are rare in the prewar sample (the inflation of the 1980s took 15 years to develop). However, prewar data is rich in sudden inflation spikes, thus providing useful information. Estimates using data over the period 1900-2022 predict that the permanent component of inflation increased by only 1.3 percentage points from 2019-2022 but by 5.0 percentage points when estimated using 1955-2022 data.

Assessing the Impact of Goods and Services Inflation on Consumer and Professional Forecaster Expectations: A Bayesian Shrinkage Approach

ABSTRACT In this paper we empirically examine how changes in 17 goods and services categories of inflation affect inflation expectations. More specifically, we use a Bayesian time-varying-parameter model with shrinkage and stochastic volatility to examine the predictive ability of sectoral components of inflation for consumer and professional forecaster surveys of inflation expectations. We additionally examine how those predictive abilities change over time. Findings suggest that inflation expectations by professional forecasters are not much affected by short-term price changes in the prices of goods and services. However, price changes in food, food services and to lesser extent energy appear to be a significant and meaningful predictors of short-term household inflation forecasts. However, those effects demonstrate considerable variation over time. Overall, these results shed light on the dynamics of inflation expectations and have important implications for policymakers and stakeholders in the economy.

Investigating unemployment hysteresis in South Africa

AbstractThis paper investigates hysteresis in South Africa's unemployment. First, we test the presence of hysteresis in unemployment using traditional stationarity tests and non‐linear transformation methods to identify two further characteristics of hysteresis, namely, remanence and selective memory. In the second part of the paper, we estimate a simple insider–outsider model using a Bayesian vector autoregression methodology to identify the shocks driving unemployment dynamics. The main finding is that mark‐up shocks and negative productivity shocks are the main drivers of unemployment, with demand shocks playing a secondary role. Nominal wages are not responsive to real shocks and are an important component of inflation. These results point to the difficulty of absorbing the current level of unemployment without a significant increase in the flexibility of goods and labour markets. At the same time, the evidence suggests that, if reforms are being implemented, demand policies can play a significant role in improving employment and growth, reversing the structural unemployment evident in the data.

Was There Any Greed After All? The Lack of Greedflation Evidence in Greek Economic Data

As Greece has been experiencing a 9.6% inflation in 2022 and 4.2% in 2023, a policy narrative has risen claiming that corporate profits are to blame for the price hikes. However, Greek economic data indicate that when precisely defined, corporate unit profits are within their usual range. Furthermore, publicly available data indicate that corporate mark-ups (price-to-cost ratios) are relatively stable and primarily driven by the increases in costs of goods sold, with a mild increase being attributed to temporary business support measures in force in 2021. In addition, there is the overlooked demand-side component of inflation, contributing up to 50% in price increases between 2021 and 2022, fueled by the country’s fiscal responses to the crises of COVID-19 and the energy crisis of 2021-2022, both of which were among the largest in the world relative to GDP. On top of that, spending of the funds available under the RRF, with Greece once again spending the most in the E.U. relative to its GDP, further contributes to the inflationary pressures. As a result, it is imperative that any government financial support against increasing prices must be better targeted to not work as an income boost, fueling demand side inflation, and that the RRF plan be quickly implemented to lower prices by increasing the country’s productivity, rather than providing widespread income support in the hope of lowering mark-ups and prices only by enforcing competition regulations, which may bring opposite results than those intended.

Dynamics of the Inflation-Hedging Capabilities of Real Estate Investment Portfolios in the Nigerian Property Market

There has been a wide belief that real estate is a source of good investment portfolios because it has a hedge against inflation. Considering this notion, the present research examined the dynamics of the inflation-hedging capabilities of real estate investment in Nigeria’s three foremost property markets, Abuja (Maitama and Central Business District), Lagos (Lekki and Victoria Island), and Port Harcourt (Rumu Ibekwe and Aba Road). To achieve this aim, this study was carried out by exploring the returns on different types of commercial properties in the chosen location and investigating the effect of inflation on such returns in order to come up with the hedging capabilities of the assets. Out of the four property prime locations in Nigeria’s market, these selected study sites were purposely selected for investigation because they comprise the most desirable and preferred properties regarding location, standards, aesthetics, and value. From the data collected, a mean return, coefficient of variation, and ordinary least square regression analysis were completed. In terms of the coefficient of variation (CV), the findings reveal that the duplex in Port Harcourt exhibits the most performed investment, with a value of 0.33, compared to other locations. However, in terms of the expected return (ER), the duplex outperformed other property types in the different locations, with a return of 39.56%. Results also show that inflation has an adverse effect on the returns of the office space for the three locations considered, with the expected returns below 1%. The block of flats in Abuja has a complete defence against the three components of inflation, with a coefficient beta of 0.5633, 0.6586, and 0.8440, respectively. Thus, investors should consider inflation and other investment attributes when making decisions among arrays of investments. This will help guard against the widespread perception that real estate has a hedge against inflation. This paper adds to the existing literature on inflation hedging by investigating the effect of inflation on the real estate investment returns of commercial properties.

Euro area inflation and a new measure of core inflation

This paper introduces a new decomposition of euro area headline inflation into core, cyclical, and residual components. Our new core inflation measure, the structural core inflation rate, is the expected headline inflation, conditional to medium to long-term demand and supply-side developments. It shows smoothness and trending properties, economic content, and forecasting ability for headline inflation and other available core inflation measures routinely used at the ECB for internal or external communication. Hence, it carries additional helpful information for policy-making decisions. Concerning recent developments, all the inflation components contributed to its post-pandemic upsurge. Since mid-2021, core inflation has been downward, landing at about 3% in 2022. Cyclical and residual inflation-associated with idiosyncratic supply chains, energy markets, and geopolitical tensions- are currently the major threats to price stability. While some cyclical stabilization is ongoing, a stagflation scenario cum weakening overall financial conditions might emerge. A pressing issue for ECB monetary policy will be to face -mostly supply-side- inflationary pressure without triggering a financial crisis.

The ways of formation and receipts of corporative investment projects

The paper defines the basic theoretical and modern methodological approaches to the formation and evaluation of the feasibility of corporative investment projects. These are formed by the organizational structure of investment projects support on the basis of the functional distribution. The efficiency valuation mechanism of the corporative investment project is developed. The model of multi-factor efficiency valuation of corporative investment projects is developed and functionally filled. It is proposed an algorithm for grouping corporative investment projects by efficiency criterion. The analysis of the existing indicators of investment efficiency showed the absence of a valuation indicator the innovative efficiency of investment projects. There are formulated the author’s interpretation of this concept and proposed three-component indicator, the risk and inflation components of which determine what part of the innovative effect of an investment project can be lost as a result of the manifestation, respectively, of risk factors and inflation. It was developed a model of investment project management “investments-risk”, based on the simultaneous formation of a calendar plan and technological budget, as well as determining the probability of occurrence of risk events, measures on the actions for the common goals of investment projects and the development of actions to respond to risks with the use of structural decomposition of works as a result of interrelated calculation of terms and value of investment projects. It was developed a model of investment project management “investments-risk”, based on the simultaneous formation of a calendar plan and technological budget, as well as determining the probability of occurrence of risk events, measures on the actions for the common goals of investment projects. The mechanism of efficiency valuation of investment projects can get a boost in the development by introducing indicators of social and environmental efficiency of the investment project and on this basis determining the social significance, which will improve the quality and objectivity of the general justification of the investment project and will allow to systematize the sequence of valuation.

Inflation, interest rates and the predictability of stock returns

This paper focuses on the predictive role of inflation and interest rates in forecasting stock returns. We report economically significant in-sample evidence that stock returns are predictable using cyclical components of inflation and interest rates. The out-of-sample analysis results show that these cyclical components have reasonable out-of-sample predictability for the equity risk premium when the comparison is made against a historical average benchmark. We believe this is due to the fact that both inflation and interest rates contain stochastic trends. Accounting for changes in trend inflation (and equilibrium real interest rate) is essential for forecasting stock returns.

The Global Factors Driving Common Inflation In ASEAN

Purpose: This study investigates the comovements of inflation across ASEAN countries and identifies the global factors driving the common inflation dynamics of the region. Design/methodology/approach: The study uses a two-step approach. The dynamic latent factor model is first employed to estimate the common inflation of the region in the period between 2000Q1 and 2022Q2. In the second step, a bound test approach to autoregressive distributed lag (ARDL) methodology is employed to estimate the model of common inflation, which is constructed based on the aggregate supply - aggregate demand (AS-AD) framework. Findings: The study finds a common factor of inflation across ASEAN countries. The analysis of variance decomposition indicates the significant role of common inflation in the variations of individual countries' inflation. World economic growth, oil price change, non-fuel commodity price change, and trade openness are the main drivers of ASEAN common inflation in both short and long terms. Research limitations/implications: The study focuses mainly on supply-side factors, although some demand-side factors are involved. Future studies should pay more concerns on the trade linkages among regional countries and the similarities in goals in the region. Originality/value: The study examines the common inflation component across ASEAN countries, which has not been sufficiently investigated. It also evaluates the drivers at the global level of common inflation, which has limited empirical evidence.

Analyzing Factors Driving Economic Growth in Indonesia Using the Autoregressive Distributed Lag (ARDL) Model

Purpose: This research aims to determine the effect of foreign direct investment (FDI), inflation, and employment on Indonesia's economic progress from 1990 to 2021. Theoretical framework: The theoretical literature on the influence of foreign direct investment on economic growth offers two distinct approaches. On the basis of the preceding theoretical explanation, it can be determined that inflation is a continuous increase in the price of goods and services over a given period, not just for a single item. Design/methodology/approach: This study uses the ARDL (Autoregressive Distributed Lag) model. Various model and method have been carried out for empirical studies of economic development; analysis Vector Auto Regression Findings: According to the findings, inflation has a considerable and negative impact on Indonesia's long-term economic growth. At lags 2 and 3, FDI has a big advantageous influence on the Indonesian economy but has a significant negative impact in the long run. Over time, employment has no substantial and negative impact on economic growth. Research, Practical & Social implications: According to this study, the Indonesian government should continue controlling inflation and establishing a more conducive investment climate to boost economic growth. Originality/value: This study reveals that the inflation component has a large and negative impact on Indonesia's economic growth over the long term. Long-term inflation increases can support economic growth in Indonesia.

Вплив глобалізації на динаміку інфляції

Introduction. The article studies the impact of globalization on the dynamics of inflation due to increased integration between developed economies and emerging countries in the period 1990-2022, its causes and effects. Problem Statement. Based on the analysis of statistical data, it was established that global inflation in the world economy has a direct impact on domestic inflation in emerging countries, as well as a pronounced structural character in developed countries. This means that even minor disruptions in global trade channels can cause inflation. Purpose. Explaining the impact of globalization on the level of inflation in developed countries and commodity economies through the expansion of trade integration, the strengthening of the role of emerging markets, price competition and the increase in the volatility of interest rates. Methods. According to the results of a dispersion analysis, a hypothesis of the existence of a connection between the components of globalization channels and inflation indicators, which determine the volatility of prices for goods and services in the medium term was investigated . Results. The global components of each inflation indicator are analyzed for the full sample of advanced economies and emerging markets. CPI and producer price index are found to have a significant common global component, accounting for 40% of the difference in CPI inflation and 52% in producer price index inflation of the countries in the sample. However, the role of the common component is much smaller for core inflation and wage inflation. The first main component of inflation accounts for about 21-26% of the variation in inflation for different samples. Conclusions. The increase in the global component of inflation over the past two decades can be explained by major global crises arising from high volatility of commodity prices, greater sensitivity of countries to global shocks due to increased trade or financial integration, or closer direct links between economies. The effect of the transfer of global inflation on domestic prices requires that the central bank should conduct a tighter monetary policy towards achieving the price stability.

The Role of Wages in Trend Inflation: Back to the 1980s?

This paper examines whether the measurement of trend inflation can be improved by using wage data in a dynamic factor model of disaggregated prices and wages for the United States. The model features time-varying coefficients and stochastic volatility. An estimate of trend inflation is a time-varying distributed lag of prices and wages, where the weight on a series depends on its time-varying volatility, persistence, and comovement with other series. The results show that wages inform estimates of trend inflation. The weight on wages was highest around 1980, drifted down through the 2000s, and returned to its 1980s value by 2022. In addition, inflation in the 2020s appears to have unmoored moderately from the 2 percent range that prevailed for decades, as the role of the persistent component of inflation increased in recent year. However, accounting for wages lowers the model's view of the increase in the volatility of trend inflation.

The global component of headline and core inflation in emerging market economies and its ability to improve forecasting performance

The global component of headline and core inflation in emerging market economies and its ability to improve forecasting performance

The Effect of Exports, Government Expenditures and Inflation on Economic Growth in Central Kalimantan

This study analyzes how the partial and simultaneous influence of the components of exports, government spending and inflation on economic growth. The method used in this research is descriptive-quantitative approach. The data used in this study is time series data for 2010-2019 in the quarter period in Central Kalimantan Province. The collected data is then analyzed using Multiple Linear Regression, the software used is Eviews version 9. The results of this study indicate that partially exports have a negative and insignificant effect on economic growth. Government Expenditure partially has a negative and insignificant effect on Economic Growth. Inflation partially positive and significant effect on economic growth. And overall Exports, Government Expenditures, and Inflation simultaneously have no effect on Economic Growth.