Uncovering Sticky-Price Inflation: A Game-Changer for Central Banks
Prices in South Africa change at different rates, with some changing every month and others every 15 months. By analyzing these price changes, researchers found that prices that change less often contain more information about future inflation. They separated goods inflation into two types: flexible prices that change frequently and sticky prices that change less often. Flexible prices are more volatile, while sticky prices are more stable and predict future inflation well. Sticky prices can help central banks make better policy decisions and are a good measure of core inflation. Comparing different core inflation measures, sticky prices stand out as a useful tool for understanding underlying inflation trends.