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Has core inflation been doing a good job in Brazil?

DOI: 10.1590/S0034-71402011000200005

Keywords: core inflation, inflation, supply shocks, relative prices, volatility.

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Abstract:

this paper assesses the performance of the core inflation measures calculated by the brazilian central bank (bcb). the evidence shows that they do not meet some key statistical criteria that a good core inflation measure should have: unbiasedness and the ability to forecast inflation. that performance stems, in part, from the lack of a well-grounded statistical and economical basis underlying them. three new measures are built and assessed using the same criteria. the evidence shows that although their behaviour is more in accordance to what the theory claims, they still lack the ability to help forecasting inflation. hence both the bcb and the market should use core inflation cautiously.

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