1 Arashibar

Consumer Price Index Research Papers

November 2006
Monetary Affairs Department (currently Financial
Systems and Bank Examination Department)
Shigenori Shiratsuka

Click on rev06e07.pdf to download the full text.

The primary objective of the Bank of Japan (BOJ) in conducting monetary policy is to promote sustainable growth by achieving price stability. The price stability that needs to be achieved is regarded as not just short-term and temporary, but sustainable in the medium to long term, which is the common understanding among major central banks. To fulfill this mandate, the BOJ is required to identify the underlying trend of inflation by excluding various idiosyncratic disturbances from measured price developments in price indexes. This paper examines the effects of idiosyncratic disturbances on Japan's consumer price index (CPI), computes several core indicators to capture the underlying trend of inflation, and compares their performances. Empirical evidence reveals that the CPI excluding fresh food and 10-percent trimmed mean show somewhat better performances than other indicators in terms of tracking the underlying trend of inflation and forecasting the future direction of headline inflation. In examining consumer price developments, it is thus deemed important to monitor various indicators, including the CPI excluding fresh food that has drawn most of the focus. This enables us to identify the underlying trend of inflation by capturing the nature and size of idiosyncratic disturbances behind consumer price dynamics.


This series explains recent economic and financial topics in a plain and concise manner for a wide range of readers. The views expressed in the report are those of the authors and do not necessarily reflect the views of the Bank of Japan.

Comments and questions as well as requests for hard copies should be addressed to Satoshi Yamaguchi, Director, Monetary Affairs Department (satoshi.yamaguchi@boj.or.jp).

The Division of Price and Index Number Research (PINR) conducts research to strengthen and improve existing price and expenditure measurement concepts and techniques and enhance the analytical usefulness of BLS programs.

Division of Price and Index Number Research

The Division was created in 1963 in response to the Stigler Commission Report on Federal price statistics. It has had a long and successful professional history, both in providing economic consulting services to the Bureau and in serving as a source of, and conduit for, new ideas in the economics profession.

A large portion of Division staff time is devoted to individual, long term research on both theoretical and empirical topics. Traditionally, Division research has been oriented toward resolution of measurement problems, using a wide range of methods from microeconomic and macroeconomic theory, consumer economics, industrial organization, labor economics, mathematical economics, econometrics, and statistics.

The Division also provides consulting services to the other price program Divisions as the need arises. For example, staff members have worked with analysts from the Consumer Price Program to develop and analyze the new C-CPI-U (superlative price index). Currently consulting efforts also include projects involving the Producer Price Index Program and the Consumer Expenditure Surveys.

Current research includes:

  • Evaluating the differences between Consumer Expenditure Survey and Personal Consumption Expenditure (PCE) data, and comparing the PCE deflator to the CPI.
  • Evaluating the measurement of health insurance prices.
  • Development of an alternative price index for college tuition
  • Evaluating the methodology of quality adjustment in the CPI
  • Developing hedonic methodologies for consumer audio products, personal computers, and televisions.
  • Evaluating the methodology for measuring the services from home-ownership in the CPI.
  • Examining the differences in measures of price change for different demographic groups.


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Other BLS Programs

  • Consumer Price Indexes—Monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services
  • Consumer Expenditure Survey (CE)—program consists of two surveys, the quarterly Interview Survey and the Diary Survey, that provide information on the buying habits of American consumers, including data on their expenditures, income, and consumer unit (families and single consumers) characteristics. The survey data are collected for the Bureau of Labor Statistics by the U.S. Census Bureau.
  • International Price Program—produces Import/Export Price Indexes (MXP) containing data on changes in the prices of nonmilitary goods and services traded between the U.S. and the rest of the world.
  • Producer Price Index—program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.

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