Consumer Prices Trends in Colombia: Detecting Breaks and Forecasting Inflation

Borradores de Economia
Number: 
1289
Published: 
Classification JEL: 
C22, C43, E31, E37
Keywords: 
Consumer Price Indexes (24648), Linear Trend Models (24649), Structural Breaks (24650), Forecasting (20816), Forecasting Evaluation (24651)

The most recent

Julián Alonso Cárdenas-Cárdenas, Deicy Johana Cristiano-Botia, Eliana Rocío González-Molano, Carlos Alfonso Huertas-Campos
Luis E. Arango, Juan José Ospina-Tejeiro, Fernando Arias-Rodríguez, Oscar Iván Ávila-Montealegre, Jaime Andrés Collazos-Rodríguez, Diana M. Cortázar Gómez, Juan Pablo Cote-Barón, Julio Escobar-Potes, Aarón Levi Garavito-Acosta, Franky Juliano Galeano-Ramírez, Eliana Rocío González-Molano, Maria Camila Gomez Cardona, Anderson Grajales, David Camilo López-Valenzuela, Wilmer Martinez-Rivera, Nicolás Martínez-Cortés, Rocío Clara Alexandra Mora-Quiñones, Sara Naranjo-Saldarriaga, Antonio Orozco, Daniel Parra-Amado, Julián Pérez-Amaya, José Pulido, Karen L. Pulido-Mahecha, Carolina Ramírez-Rodríguez, Sergio Restrepo Ángel, José Vicente Romero-Chamorro, Nicol Valeria Rodríguez-Rodríguez, Norberto Rodríguez-Niño, Diego Hernán Rodríguez-Hernández, Carlos D. Rojas-Martínez, Johana Andrea Sanabria-Domínguez, Diego Vásquez-Escobar
Luis Armando Galvis-Aponte, Adriana Isabel Ortega-Arrieta, Adriana Marcela Rivera-Zárate

Abstract

Colombia’s annual infation reached 13.3% in March of 2023, the highest rate since the start of the infation-targeting regime for monetary policy in 2000. However, some groups in the basket show signs of lower infation, while others show higher infation. The persistence of this trend is a matter of active debate that involves analyzing the trend component of both year-to-year and month-to-month changes in the price indices. This paper employs time series models to identify infation shift levels based on the 188 price indices in the basket. We categorize trend breaks as positive or negative and further classify them into tradable versus non-tradable, core versus regulated, and other CPI categories. Using trend models that incorporate these breaks, we forecast total and group infation. Our results show that including trend breaks enhances prediction accuracy for monthly annual infation across all time horizons