An official core inflation measure for the Philippines

Many countries routinely publish a "core" or underlying inflation rate alongside the "headline" inflation rate. In February 2004, the National Statistics Office (NSO) began publishing an official rate of core inflation for the Philippines, defined as the rate of change of headline CPI after excluding selected food and energy items. This paper provides some background in the construction of the new measure and attempts a preliminary evaluation using a few simple statistical tests. The analysis suggests that, compared to alternative measures of core inflation (such as a trimmed mean and weighted median measure), the NSO core inflation measure is more stable but appears to be less correlated with future inflation. This implies that other core inflation measures may also provide useful additional information in the assessment of future price developments. Nevertheless, the NSO core inflation measure is an important step toward addressing the policy need to identify long-term or permanent movements in the path of inflation. The new series will also help build public understanding of both the inflation process in the Philippines and the medium-term orientation of macroeconomic policy.