Common Trends in the Consumer Price Index

This paper analyzes the long-term behavior of the categories that make up the consumer price index for Metropolitan Lima, using the factor model proposed by Phillips and Sul (Econometrica, 75(6), 2007). Through this analysis, we identify four common trends: one of high inflation, two of intermediate inflation, and one of low inflation. This analysis provides a better understanding of the properties of a good measure of long-term trend inflation.