Drift in Producer Price Indices for the Former Soviet Union Countries

This paper shows that, under the price fluctuations that characterize most transition economies, the commonly used chain index derived from the published month-to-month price change of the producer price index (PPI) in most cases dramatically overstates the rate of price inflation. This drift, which is due to the use of a nonstandard formula, could affect any price index compiled with the same nonstandard formula. The drift declines with slower rates of inflation but is still important for countries in which monthly inflation continues to run at nearly 10 percent.