Forecasting inflation in the European Monetary Union: A disaggregated approach by countries and by sectors

Abstract

In ation in the European Monetary Union is measured by the Harmonized Indices of Consumer Prices (HICP) and it can be analysed by breaking down the aggregate index in two different ways. One refers to the breakdown into price indexes corresponding to big groups of markets throughout the European countries and another considers the HICP by countries. Both disaggregations are of interest because in each one, the component prices are not fully cointegrated, having more than one common factor in their trends. The paper shows that the breakdown by group of markets improves the European in ation forecasts and constitutes a framework in which general and speci c indicators can be introduced for further improvements.