Proceedings of The 6th International Conference on Management, Economics and Finance
Year: 2023
DOI: https://www.doi.org/10.33422/6th.icmef.2023.03.005
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The Analysis of Inflation in the United States Under Global Crises Based on Personal Consumption Expenditures Price Index Data From 2019
Minghan Yang
ABSTRACT:
With the high inflation under global crises, namely the pandemic and the Ukraine war, forecasting inflation is crucial to policy and decision-making. In light of the dramatic changes in commodity prices, this paper aims to build plausible Autoregressive-Integrated-Moving-Average (ARIMA) models for price indexes in the United States for forecasting inflation rates. This paper is based upon four price index time series: Personal Consumption Expenditures Price Indexes (PCEPI), core PCEPI, Consumer Price Index (CPI), and core CPI, while the latter two are used as robustness checks. Each time series contains 47 monthly observations ranging from January 2019 to November 2022. Models are selected based on interpretability and accuracy, which is measured by Akaike and Bayesian information criterion values. ARIMA(1,2,2) and ARIMA(0,2,2) are selected as best-performing models according to these criteria. It is predicted that the inflation and core inflation rates are likely to decrease in the next six months, as a result of continuously decreasing difference between the forecasted upgoing price indexes and that in the previous year. Yet the inflation is likely to remain at a high level compared to the 2% target, with inflation rate above 3.6% and core inflation around 5%. Based on these predictions, raising interest rates, reducing money supply, and improving social welfare are suggested.
keywords: inflation, forecast, price index, global crises, time series