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Federal Reserve Bank of Atlanta
FRB Atlanta Working Paper
Trimmed-Mean Inflation Statistics: Just Hit the One in the Middle
Brent Meyer
Guhan Venkatu

This paper reinvestigates the performance of trimmed-mean inflation measures some 20 years since their inception, asking whether there is a particular trimmed-mean measure that dominates the median consumer price index (CPI). Unlike previous research, we evaluate the performance of symmetric and asymmetric trimmed means using a well known equality of prediction test. We find that there is a large swath of trimmed means that have statistically indistinguishable performance. Also, although the swath of statistically similar trims changes slightly over different sample periods, it always includes the median CPI - an extreme trim that holds conceptual and computational advantages. We conclude with a simple forecasting exercise that highlights the advantage of the median CPI (and trimmed-mean estimators in general) relative to other standard measures in forecasting headline inflation.

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Brent Meyer & Guhan Venkatu, Trimmed-Mean Inflation Statistics: Just Hit the One in the Middle, Federal Reserve Bank of Atlanta, FRB Atlanta Working Paper 2014-3, 01 Mar 2014.
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Keywords: inflation; inflation forecasting; trimmed-mean estimators
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