Introduction to Part II

In many Countries, defining the target is a prerogative of the government; measurement of targets is a more technical issue, involving primarily the statistical agency but also the central bank as a prime user of the data. One theme of the chapters in Part II is that inflation targeting has brought about a healthy change regarding the relationship between central banks and national statistical agencies, providing both with incentives to pay more attention to each other’s needs. For central banks, it is useful to better understand the statistical considerations that go into assembling a basket of items for the consumer price index. Conversely, it is useful for statistical offices to have a better grasp of central bank operations and how the statistical information is used.

Amanda Rowlatt (Chapter 7) describes how inflation targeting in the United Kingdom has brought about closer cooperation, in the format of a tripartite relationship, between the Office for National Statistics (ONS), the Bank of England, and Her Majesty’s Treasury. Good channels of communication, codified in various documents, include formal strategic meetings among the agencies supported by many informal technical contacts and good working relationships at the board level. In a recent innovation, before the Bank of England’s Monetary Policy Committee meets to make policy decisions, the briefing meeting at the Bank of England includes representatives of the ONS, who thereby get a firsthand look at how the statistics are being used in a monetary policy context. Setting the target is the Treasury’s prerogative.

Vítor Gaspar (Chapter 8) notes that for the European Central Bank (ECB), the goal of price stability is part of the European Union Treaty, although the Treaty does not specify a quantitative formulation, which was provided by the ECB’s Governing Council. His chapter describes the evolving harmonized index of consumer prices, which now serves as the measure of inflation in the European Union, and he maps out four areas for further improving this indicator. In discussing the rationale for choosing a consumer price index, he notes that the relevant index should also reflect underlying longer-term contracts, especially those related to housing and pension funds. The importance of consistency of data with the system of national accounts is also an important aspect for the choice of a target.

Pablo Garcia (Chapter 9) describes how the Bank of Chile has developed considerable expertise in modeling with various measures of core consumer price indices, using data produced by the national statistical agency. His chapter stresses the importance of labor market data and knowledge about how these feed into price expectations and price-level developments, an area where many emerging markets have considerable statistical needs.

Adriaan Bloem, Paul Armknecht, and Kimberly Zieschang (Chapter 10) lay out some generally desirable properties of an inflation index, including broad scope and appropriate valuation as key criteria. A consumer price index, chosen by most inflation-targeting countries, has obvious advantages such as availability and credibility with the public. However, its limited scope and its focus on households provide only a partial perspective on the investment and spending decisions in the economy. Over the longer term, alternative or additional indices could be considered, including a broadly defined producer price index.