Adjusting Median and Trimmed-Mean Inflation Rates for Bias Based on Skewness

RePEc Short ID: pri146
ORCID iD: 0000-0002-2482-072X

Rich, Robert W.; Verbrugge, Randal J.; Zaman, Saeed

doi:10.26509/frbc-ec-202205

Journal Article

Adjusting Median and Trimmed-Mean Inflation Rates for Bias Based on Skewness

Abstract: Median and trimmed-mean inflation rates tend to be useful estimates of trend inflation over long periods, but they can exhibit persistent departures from the underlying trend over shorter horizons. In this Commentary, we document that the extent of this bias is related to the degree of skewness in the distribution of price changes. The shift in the skewness of the cross-sectional price-change distribution during the pandemic means that median PCE and trimmed-mean PCE inflation rates have recently been understating the trend in PCE inflation by about 15 and 35 basis points, respectively.

Keywords: inflation;

https://doi.org/10.26509/frbc-ec-202205