Using a variety of indicators to gauge inflation is practiced worldwide

26 february 2018 | Nezavisimaya Gazeta

This week, the Analytical Center issued a bulletin titled Consumer Prices Trends in 2017 resulted in the Independent Newspaper long article trying to make sense of the nuances of statistics that are used to figure out what is going on with the inflation in the country. The government reports and documents, including budget projections include December-on-December inflation indicators, which differ significantly from the average annual prices behavior, the newspaper writes.

Alexander Golyashev
Alexander Golyashev
Department for Research Studies

"The official annualized and December-on-December inflation estimates are essentially two types of the same indicator that describes how much the prices went up by. They answer two different questions, though: the December-on-December increase in prices simply tells us how much the prices went up by over the year while the average annual increase in prices answers a more complication question about the difference between the average prices in one year and the average prices in the previous year," explains Analytical Center expert Alexander Golyashev.

The main inflation indicator used by various government agencies is the December-on-December increase in prices does not account for variation in the rate of inflation that occurred within the year so, for, say, 2014, it is often said to over-estimate the rate of inflation (because the ruble crashed and inflation shot up towards the very end of 2014) while under-estimating the inflation rate for 2015-2017 vis-a-vis the average annual rate, as is pointed out in the bulletin of the Analytical Center.

"Over the long term periods of several years or several decades there is practically no difference between the two indicators, and in general, within 2014-2017, the prices increased by 36% based on the December-on-December indicator and by 38% based on the annual average indicators," Mr. Golyashev points out. 

Both inflation indicators have solid scientific justification, both are calculated by the Federal Statistics Services in strict conformance to the Russian and international statistical reporting standards, and both are made available to the public in the same statistical tables. The IMF in its World Economic Outlook Database also uses two inflation indicators for all the countries around the world: the average annual increase in prices and the December-on-December increase in prices, so anyone can study inflation using whichever indicator they prefer. In other words, the situation is the same as with GDP in USD at the official exchange rate and parity purchasing power USD, two indicators that each come in a variety of versions and are used differently by experts and government officials, Mr. Golyashev stresses.

Source: The Nezavisimaya Gazeta