Computing the relative price divergence as a measure of inflation pressure in Peru

This papers aims at analyzing the price divergence in Peru by using a non-linear model with time-varying coefficients (see Phillips and Sul, 2007) and identifying common trends in prices among some groupings in the basic consumer’s basket, as well as in-side the main CPI components. A significant price divergence with persistent upward trends in the most important core inflation items could signal the existence of real relative demand and supply shocks.