understanding the Global Multivariate Core Trend Inflation Framework

The Global MCT framework is designed to estimate the influence of global and domestic factors on inflation persistence across different countries. it also aims to determine whether these factors affect all sectors uniformly or are concentrated in specific areas. The model analyzes annualized monthly inflation rates for four key sectors within the CPI: core goods, non-housing core services, housing, and food and energy.

By decomposing each country-sector inflation rate into trend and transitory components, the Global MCT identifies elements common across all countries and sectors, sector-specific components common across countries, country-specific components common across sectors, and residual idiosyncratic components. This detailed breakdown allows for a nuanced understanding of the drivers of inflation in each region.

The Significant Role of Global Trends in Headline CPI Inflation Persistence

The Global MCT model highlights three common factors as especially influential: the Global Inflation Trend (GIT), which affects all sectors and countries; the Core Goods Global Inflation Trend (CG-GIT); and the Food and Energy Global Inflation Trend (FE-GIT). These factors collectively explain a significant portion of the slow-moving and persistent dynamics of overall CPI inflation in the U.S. and abroad.

Except for Japan, global factors account for up to 90 percent of the persistence of CPI inflation in advanced economies. This underscores that the persistent component of U.S. CPI inflation is largely driven by factors shared across countries rather than being solely U.S.-specific.

The importance of global factors is not limited to the post-pandemic period; it represents a consistent characteristic of international inflation data. The model separates transitory dynamics from more persistent ones,with the latter being more relevant for policy perspectives as they signal inflationary pressures that are slower to dissipate.

Global Trends Drive Inflation Persistence Across Countries, Both Pre and Post COVID-19

The following table illustrates the influence of global inflation trends and global sectoral trends on various economies, both before and after the COVID-19 pandemic. The data highlights the percentage of inflation persistence attributable to these global factors.

Key takeaways: global Inflation trends

The analysis identifies three main takeaways regarding international inflation rates. First,there is a “strong commonality across sectoral inflation rates,” indicating a global influence. Second, the “common fluctuations in inflation persistence across countries and sectors” have been a stable characteristic since the early 1990s.Third, goods inflation, including core goods, exhibits a “very strong international component,” beyond just food and energy.

The research emphasizes the surprising strength of the international dimension in core goods inflation. The analysis suggests that “integration in product markets and also the ever-increasing reliance on global supply chains binds core goods prices together across countries.” this interconnectedness means that price pressures in one part of the world can quickly spread to others, influencing domestic inflation rates.

U.S. Inflation’s Post-Pandemic Surge: A Global Story

Focusing specifically on the post-pandemic inflation surge in the U.S., the analysis examines the contribution of global inflation trends to the persistence of U.S. sectoral CPI inflation since December 2019. A key finding is that “U.S.-specific components (the red bars) have played a rather negligible role in the overall trend.” This suggests that domestic factors tend to be more transitory and less influential on long-term trends, highlighting the dominance of global forces.

The study highlights the dominance of global factors in core goods and non-housing core services inflation. The evolution of the persistent component of U.S. core goods inflation is “dominated by the sectoral global factor CG-GIT,” likely due to disruptions in global supply chains and international trade as 2020.conversely, U.S. non-housing core services inflation is primarily a “GIT story,” indicating a strong influence from general global trends.

Housing and food & energy inflation show a more mixed picture, with multiple components playing significant roles. The international sectoral trend (H-GIT) plays a significant role for housing from 2022 onward, likely due to the widespread increase in rents.The sectoral global trend also captures the significant swing in food & energy inflation, largely attributed to sharp movements in energy prices affecting multiple countries as the pandemic and reinforced by the Russian invasion of Ukraine in February 2022. These geopolitical events and their impact on commodity markets further illustrate the interconnectedness of global inflation dynamics.

Conclusion: The Global Nature of Inflation

The analysis concludes that international inflation rates, once adjusted for transitory movements, exhibit a “very strong commonality.” The slow-moving trends observed in U.S.inflation rates are not unique to the U.S. but are shared globally. Three global trends effectively capture the bulk of the variation in inflation persistence across countries.

In this post we have shown that once transitory movements are removed, international inflation rates display a very strong commonality. Simply put, the slow-moving trends that we see in U.S. inflation rates are not U.S.-specific but are shared by other countries as well. Three global trends capture the bulk of the variation in inflation persistence across countries.

The findings raise questions about the underlying causes of these global trends, which will be addressed in further analysis. Understanding these global drivers is crucial for policymakers as they navigate the complexities of managing inflation in an interconnected world.The research highlights the need for international cooperation and coordinated policy responses to address global inflation challenges effectively.

New York, NY – A complete analysis of global trends influencing U.S. inflation dynamics has been released by the Federal Reserve Bank of New York. The study, published on February 27, 2025, is authored by a team of economists including Ozge Akinci, Martin Almuzara, Silvia Miranda-Agrippino, Ramya Nallamotu, Argia Sbordone, Greg Simitian, and William Zeng. Their research delves into the intricate ways international factors contribute to the fluctuations observed in domestic price levels within the United States.

Understanding the drivers of inflation is crucial for policymakers and economists alike.This latest research from the Federal Reserve bank of New York aims to shed light on the global forces at play,providing valuable insights into the complexities of managing inflation in an increasingly interconnected world. The team of researchers brings a wealth of expertise to the subject, promising a rigorous and insightful examination of the topic.

The Research Team

The study was conducted by a team of accomplished economists at the Federal Reserve Bank of New York. Here’s a closer look at the researchers involved:

• Ozge akinci is an economist in the Federal Reserve Bank of New York’s Research and Statistics Group.
• Martin Almuzara is an economist in the Federal Reserve Bank of New York’s Research and statistics Group.
• Silvia Miranda-agrippino is an economist in the Federal Reserve Bank of New York’s Research and Statistics Group.
• Ramya Nallamotu is an economist in the Federal Reserve Bank of New York’s Research and Statistics Group.
• Argia Sbordone is an economist in the Federal Reserve Bank of New York’s Research and Statistics Group.
• Greg Simitian is an economist in the Federal Reserve Bank of New York’s Research and Statistics Group.
• William Zeng is an economist in the Federal Reserve Bank of New York’s Research and Statistics Group.

Sectoral Inflation Persistence and the Role of Global Trends

Each global trend influences the persistence of sectoral CPI inflation differently across countries. Non-housing core services inflation is primarily explained by the GIT, which is common across all countries and sectors. Though, explaining goods inflation and food and energy inflation requires the two additional sector-specific global trends: CG-GIT and FE-GIT.

Conclusion

The analysis using the Global MCT model provides valuable insights into the dynamics of inflation across major global economies. The findings emphasize the significant role of global trends in driving CPI inflation persistence, both in the U.S. and internationally. Understanding these global factors is crucial for policymakers as they navigate the complexities of managing inflation in an interconnected world.

Federal Reserve Study Uncovers Key Global Inflation Trends

A comprehensive study conducted by researchers at the Federal Reserve Bank of New York sheds light on the significant role global trends play in shaping inflation within the U.S. and other major economies. The research team, comprised of Ozge Akinci, Martin Almuzara, Silvia Miranda-Agrippino, Ramya Nallamotu, Argia Sbordone, Greg Simitian, and William Zeng, employed a sophisticated model to dissect the complex interplay between international events and domestic price levels.

The study’s findings challenge the notion that domestic factors are the sole determinant of inflation, revealing that global influences account for a substantial portion of persistent CPI inflation. This underscores the need for policymakers to adopt a global perspective when formulating strategies to maintain price stability.

Global Factors Dominate Persistent Inflation

The research highlights the dominance of global factors in driving persistent inflation. According to the study, a “meaningful portion (up to 90% in advanced economies excluding japan) of persistent CPI inflation is explained by global factors, not solely domestic conditions.” This finding is consistent across different time periods, remaining true both before and after the onset of the COVID-19 pandemic. This suggests that the interconnectedness of global economies has a profound and lasting impact on inflation dynamics.

The study emphasizes that these global factors are not merely short-term shocks but rather persistent trends that exert a sustained influence on inflation rates. Understanding these trends is crucial for policymakers seeking to implement effective monetary policy.

The Global Multivariate Core Trend (MCT) Model

To disentangle the complex forces driving inflation, the researchers utilized a “global MCT model, an extension of the New York Fed’s MCT model, to separate transitory and persistent components of inflation.” This model is designed to identify common global trends that influence inflation across countries and sectors, providing a more nuanced understanding of the underlying drivers of price changes.

By separating transitory and persistent components of inflation, the Global MCT model allows researchers to distinguish between temporary price fluctuations and more enduring trends. This distinction is critical for policymakers, as persistent inflation requires a different policy response than transitory shocks.

Three key Global Trends Identified

The analysis identified three key global trends that exert a particularly strong influence on inflation:

• Global Inflation Trend (GIT): This trend “affects all sectors and countries,” representing a broad, overarching influence on global price levels.
• Core Goods Global Inflation Trend (CG-GIT): This trend “specifically impacts core goods inflation,” reflecting the unique dynamics of the global market for manufactured goods.
• Food and Energy Global Inflation Trend (FE-GIT): This trend “specifically impacts food and energy inflation,” capturing the volatility and interconnectedness of global commodity markets.

These three trends provide a framework for understanding how global factors translate into specific inflationary pressures within different sectors of the economy. The study notes that “while the GIT primarily explains non-housing core services inflation, the CG-GIT and FE-GIT are needed to explain goods and food/energy inflation respectively.”

Long-Term Stability of Global Influence

The influence of these global factors is not a recent phenomenon. The study indicates a “consistent influence as at least the early 1990s,” suggesting that global trends have played a significant role in shaping inflation dynamics for several decades. this long-term stability underscores the importance of incorporating a global perspective into economic analysis and policymaking.

Policy Implications for an Interconnected World

The research has significant policy implications for central banks and governments around the world. Understanding these global trends is “crucial for policymakers in managing inflation effectively in an interconnected world, as these persistent components of inflation are slower to dissipate than transitory shocks.”

Given the persistent nature of global inflation trends, policymakers need to adopt a long-term perspective and consider the international implications of their actions. This may involve coordinating policies with other countries to address shared inflationary pressures.

Expertise Behind the Research

The research team at the Federal Reserve Bank of New York brings a wealth of expertise to the study of global inflation dynamics. argia Sbordone is the head of Macroeconomic and Monetary Studies in the federal Reserve Bank of New York’s Research and Statistics Group. Greg Simitian and William Zeng are research analysts in International Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

The diverse expertise within this team, spanning macroeconomics, monetary policy, and international studies, suggests a multifaceted approach to understanding the global drivers of U.S. inflation.Their combined knowledge and experience are vital for dissecting the complex interactions between international events and domestic price stability.