Estimating Standard Error of Inflation in Pakistan: A Stochastic Approach

Standard errors (S.Es.) of month on month and year on year inflation in Pakistan are estimated based on data for the period of July 2001 to June 2010 using stochastic approach as well as extended stochastic approach to index numbers. A mechanism is developed to estimate S.E. of period average headline inflation using these approaches. This mechanism is then applied to estimate S.Es. of 12-month average inflation in Pakistan for July 2003 to June 2010. The systematic changes in the relative prices of different groups in the CPI basket for Pakistan are also estimated. [SBP No. 46]. URL:[http://www.sbp.org.pk/publications/wpapers/2012/wp46.pdf].