Summary
Successfully implementing monetary policy depends significantly on an appropriate framework for measuring the target inflation rate. In most countries, central statistical or government agencies are responsible for compiling and disseminating inflation data. But central banks often lack a comprehensive understanding of the conceptual basis and methodologies involved in this process, which has impeded a detailed analysis of how inflation figures influence monetary policy. This study highlights the main challenges involved in measuring the Consumer Price Index (CPI) and provides an overview of how the eight SEACEN member economies that participated in this study, compile their CPIs. Although the compilation methodologies adhere to internationally recognised best practices, there are significant differences in terms of coverage, computation methods, the weight assigned to items in the CPI basket, and various inflation aggregates. A more detailed analysis of inflation trends indicates that inflation is driven by a limited set of prices rather than by widespread movements across the economy. It has been observed that food inflation is generally higher than inflation for non-food items and services in most countries over the medium- to long- term. In addition to direct effects, this narrow range of items can influence overall inflation through second-round effects on the prices of other goods and services, which arise from increased costs and inflation expectations. The findings from various country case studies highlight the advantages of analysing inflation at a more disaggregated level, rather than solely focusing on headline or core inflation figures. Furthermore, measuring inflation is a complex task, as calculating the index relies on both theoretical frameworks and practical data collection issues. This underscores the importance of flexibility in pursuing inflation targets, rather than depending on a single measure alone.
