Leading Indicators Of Inflation Research Articles

P-Star Model: A Leading Indicator of Inflation for Pakistan

The P-star inflation model is based on the long-term quantity theory of money and puts together the long-term determinants of the price level and the short-run changes in current inflation. The P-star model-based indicator has replaced the previous monetary policy procedures in a number of countries because it offers by far more information and predictive power than monitoring movements in money supply and the rate of monetary growth. In this paper we used the P-star model to calculate the leading indicator of inflation, and also to test the forecasting performance of the P-star model-based leading indicator of inflation. The results of the study show that compared to the simple autoregressive model and the M2 growth augmented model, the P-star model can be used to obtain the leading indicator of inflation in Pakistan because it has additional information about the future rate of inflation. Therefore, this paper provides a useful tool to the policy-makers to assess the future movement of inflation in Pakistan..

Commodity Prices as a Leading Indicator of Inflation

This paper studies the value of broad commodity price indexes as predictors of consumer price inflation in the G-7 industrial countries. After an introduction, the paper discusses the theoretical relationship between commodity and consumer prices and the conditions under which, in general, one would expect commodity prices to be a leading indicator of inflation. It then presents tests of the relationships between conventional broad indexes of commodity prices and consumer prices, and uses the data on individual commodities to generate the optimum weights in a commodity price index for forecasting G-7 inflation. We find that commodity and consumer prices are not co-integrated; the hypothesis that there is a reliable long-run relationship between the level of commodity prices and the level of consumer prices may be rejected. There is a tendency for changes in commodity prices to lead those in consumer prices, at least when the data are denominated in a broad index of major-country currencies. However, although the inclusion of commodity prices significantly improves the in-sample fit of regressions of an aggregate (multi-country) consumer price index, the results may not be sufficiently stable to improve post-sample forecasts. Estimated alternative commodity price indexes, in which the weights are chosen so as to minimize the residual variance in aggregate inflation regressions, track the behavior of the aggregate CPI reasonably well in-sample. However, the estimated indexes work only moderately well in post-sample predictions, and they do not appear to offer significant advantages over the conventional export weighted index. Perhaps the most important result is that turning points in commodity-price inflation frequently precede turning points in consumer-price inflation for the large industrial countries as a group.

Commodity Prices As a Leading Indicator of Inflation

Commodity Prices As a Leading Indicator of Inflation