Economics, Econometrics and Finance
3 years ago

Excluding Asset Prices from Inflation Calculation Leads to Significant Underestimation.

Asset Prices in the Measurement of Inflation
Michael Bryan, Stephen G. Cecchetti, Róisín O’Sullivan

Paper Summary

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Including asset prices in inflation calculations can provide a more accurate picture of rising prices. By using a modern statistical method, researchers found that not including asset prices in the U.S. Consumer Price Index leads to a lower reported inflation rate by about 0.25% each year. Housing prices had the biggest impact on this measurement error compared to stocks and bonds.