Trend indicators of inflation and their relevance as monetary policy variables

The Central Reserve Bank of Peru operates under an explicit inflation-targeting framework. This entails a commitment to maintain an average inflation rate of around 2 percent over time. However, headline inflation exhibits high volatility, primarily because the food component of the consumer basket is relatively high compared to more developed countries, meaning that changes in relative food prices have a more dramatic impact on headline inflation. The purpose of this paper is to characterize recent inflation trends across various dimensions. Thus, the dynamics of inflation are broken down into intensive and extensive margins; the relationship between the inflation rate and cross-sectional moments in price changes is also examined, along with inflation volatility, inflation expectations, various inflation indicators, and, finally, a set of core inflation measures is evaluated. (Audio: Department of Economic Publications)