Trimmed mean and median inflation

Trimmed means have been found to be useful in identifying underlying trends in the aggregate price data (see for example Bryan and Cecchetti (1994) and Brischetto and Richards (2007)). Notably the trimmed means have been found to produce superior forecasts of the future trend compared to traditional signal extraction tools such as core inflation. A special version of a trimmed mean is the median, which benefits from a more intuitive interpreation of being the middle item. For a general description on generating trimmed means see Dolmas (2005).

For the CPI-U inflation measure, the Cleveland FED calculates a trimmed mean inflation cutting of 16% of each side of weighted items. They also calculate a weighted median for the CPI index.

For the PCE-inflation the dallas FED calculates a trimmed mean measure cutting of the lower 31 pct and the upper 24% of weighted items.

For all indices we calculate:

    Median inflation
    Symmetrical 16 percent trimmed mean (Cleveland FED)

    Asymmetrical 24 - 31 percent trimmed mean (Dallas FED)

     

Calculation method
References
  • Brischetto, A. and Richards,A. (2007): The Performance of Trimmed Mean Measures of Underlying Inflation
  • Bryan, M., Cecchetti, S. and Wiggins, R. (1997), Efficient inflation estimation, National Bureau of Economic Research working paper No. 6183, September 1997.
  • Dolmas, J. (2005): Trimmed Mean PCE Inflation, Federal Reserve Bank of Dallas.
  • Cleveland FED Trimmed Mean LINK
  • Dallas FED Trimmed Mean LINK
Sticky prices inflation
To come..