Advances in Economics and Business Vol. 4(12), pp. 674 - 690
DOI: 10.13189/aeb.2016.041206
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Core Inflation: The Malaysian Case


Mohd Helmi Ramlee 1,*, Muhamad Shukri Abdul Rani 2
1 Department of Monetary Assessment and Strategy, Bank Negara Malaysia, Malaysia
2 Department of Financial Surveillance, Bank Negara Malaysia, Malaysia

ABSTRACT

Price stability is one of the primary goals of central banks. In assessing price stability, some central banks monitor core inflation rather than headline inflation, as it provides signal about persistent movements in inflation, which is important for the conduct of monetary policy. The objectives of this paper are threefold. First is to highlight the importance of core inflation to monetary policy. Second is to derive estimates of core inflation for Malaysia. Finally, it seeks to evaluate the performance of each measure of core inflation in forecasting headline inflation. We consider a number of measures for core inflation, and note their merits and demerits. Of significance is that each measurement performs differently when used to forecast headline inflation. This alludes to the possibility that some measures of core inflation could act as good predictors of future inflation, while others are best at describing current development.

KEYWORDS
Quantitative Methods, Price Indexes, Prices

Cite this paper
Mohd Helmi Ramlee , Muhamad Shukri Abdul Rani . "Core Inflation: The Malaysian Case." Advances in Economics and Business 4.12 (2016) 674 - 690. doi: 10.13189/aeb.2016.041206.