Wul sbe g, F ed ik
Wo king Pape
P ice Adjus men s and In la ion - E idence om
No wegian Consume P ice Da a 1975-2004
Wo king Pape , No. 2009/11
P o ided in Coope a ion wi h:
No ges Bank, Oslo
Sugges ed Ci a ion: Wul sbe g, F ed ik (2009) : P ice Adjus men s and In la ion - E idence om
No wegian Consume P ice Da a 1975-2004, Wo king Pape , No. 2009/11, ISBN 978-82-7553-507-6,
No ges Bank, Oslo,
h ps://hdl.handle.ne /11250/2577448
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2009 | 11
P ice adjus men s and in la ion - e idence om
No wegian consume p ice da a 1975-2004
by F ed ik Wul sbe g
Wo king Pape
Resea ch Depa men
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ISSN 1502-8143 (online)
ISBN 978-82-7553-507-6 (online)
P ice Adjus men s and In la ion—E idence om
No wegian Consume P ice Da a –
F ed ik Wul sbe g∗
No ges Bank
June , 
Abs ac
I documen p ice adjus men s in bo h high and low infla ion yea s om  mil-
lion mon hly p ice obse a ions o , goods and se ices. The a ia ion in he
equency o p ice changes explains all he a ia ion in he infla ion a e. On a e -
age, p ices inc ease mo e o en when infla ion is high, and dec ease mo e o en when
infla ion is low. The e is also subs an ial a ia ion bo h in he du a ion and size o
p ice changes wi hin and be ween i ems.
jel: E, D, C
Keywo ds: Consume p ices, p ice igidi y
∗No ges Bank, PO Box  Sen um,  Oslo, No way. email: ed ik.wul sbe g@no ges-bank.
no, homepage: www.no ges-bank.no/ esea ch/wul sbe g. I wish o hank S a is ics No way o p o-
iding da a and gi ing in aluable commen s. I am g a e ul o Al E ik Ballang ud and Ing il Ben e ud
Gaa de o excellen esea ch assis ance, and o he Fede al Rese e Bank o Bos on, whe e I s a ed
his p ojec . Ca los Ca alho, Mike Goloso , S eina Holden, Gisle Na ik, Julio Ro embe g, Asbjø n
Rødse h, and Alexande Wolman ga e use ul commen s as did semina pa icipan s a No ges Bank,
n nu, Uni e si y o Oslo, and bi No wegian School o Managemen . Views and conclusions exp essed in
his pape a e mine alone and canno be a ibu ed o No ges Bank.
I documen he equency and size o p ice adjus men s using obse a ions o mo e han
 million mon hly e ail p ice quo es om –. Following Bils and Klenow ()
many empi ical s udies ha e ecen ly documen ed p ice adjus men s using mic o da a o
a la ge numbe o indi idual goods. Klenow and K y so () and Nakamu a and
S einsson () in es iga e us da a om –, and Dhyne e . al () summa izes
he ipn s udy o  eu o a ea coun ies om –.One impo an issue is how p ice
adjus men s a y wi h infla ion. Nakamu a and S einsson () find ha he equency
o p ice inc eases co a y s ongly wi h infla ion, while he equency o dec eases and he
size o he p ice adjus men s do no . In con as , Klenow and K y so () epo ha
he a ia ion in infla ion is mos ly explained by a ia ion in he size o p ice adjus men s.
Dhyne e . al () find ha infla ion has a posi i e effec on he equency and he size
o p ice inc eases, and a nega i e effec on he equency and he size o p ice dec eases.
These s udies, howe e , use da a om pe iods o ela i ely low s eady s a e infla ion:
In he us a e age infla ion was . pe cen du ing –, while he a e age infla ion
a e in he eu o a ea was . pe cen du ing –. The small amoun o infla ion
a iabili y p e en s fi m conclusions ega ding how p ice adjus men s co a y wi h infla-
ion. This pape p esen s e idence on p ice adjus men s om  yea s o bo h high and
low s eady s a e infla ion. As in o he oecd coun ies cpi infla ion in No way was high
and ola ile du ing he G ea Infla ion yea s in he s and s. A e peaking a
. pe cen in Janua y , infla ion dec eased du ing he s only in e up ed in
 when he nok was de alued by  pe cen . The sample pe iod spli s nicely in o a
high-infla ion pe iod om  o  when he a e age cpi infla ion was . pe cen ,
and a low-infla ion pe iod om  o  when a e age infla ion was . pe cen pe
yea . The low-infla ion pe iod is hus qui e simila in e ms o he sample a ia ion in
infla ion in he us and Eu opean s udies .
An impo an excep ion om he s udies ci ed abo e is Gagnon () who analyzes
mic o cpi da a om Mexico –, whe e infla ion soa ed om . pe cen in 
o mo e han  pe cen in  due o he collapse in he Mexican peso. The infla ion
Bils and Klenow () in es iga e ca ego ies o consump ion goods and se ices (En y Le el I ems)
o he us om –. The Infla ion Pe sis ence Ne wo k (ipn) analyzed da a om Aus ia, Belgium,
Finland, F ance, Ge many, I aly, Luxembou g, he Ne he lands, Po ugal and Spain. See also s udies
om o he coun ies: Hansen and Lynggå d Hansen () o Denma k (–); Gáb iel and Reiff
() o Hunga y (–); and Co icelli and Ho á h () o Slo akia (–).


a e did no all below  pe cen un il . Gagnon finds ha he equency o p ice
changes accoun o li le o he infla ion a iance, and ha he equency o p ice changes
is only co ela ed wi h infla ion when infla ion is abo e – pe cen .
E en i infla ion was high and ola ile in No way du ing he s and s, i
did no fluc ua e as much as in Mexico in he s. Howe e , he shocks ha hi he
Mexican economy in he s we e diffe en om hose leading o he G ea Infla ion
in he oecd economies, which makes i in e es ing o s udy mic o da a also om his
e a. Fu he mo e, he p esen da a co e a longe pe iod p o iding mo e in o ma ion o
compa ing p ice se ing unde high infla ion wi h p ice se ing unde low infla ion.
E idence o p ice adjus men unde high and low infla ion is impo an o e alua e he
ele ance o diffe en models o p ice se ing. Assump ions ega ding p ice se ing beha -
io may ha e impo an implica ions o op imal mone a y policy and wel a e analysis.
Time and s a e dependen models ep esen wo pola cases o p ice se ing beha io . An
impo an diffe ence is ha ime dependen models (Cal o, , and Taylo , ) as-
sume ha he equency o p ice adjus men is exogenous, while s a e dependen models
(Ba o,  and Sheshinski and Weiss, ) ea bo h he equency and magni udes
o p ice adjus men as choice a iables o he fi ms. In s a e dependen models fi ms ace
a fixed adminis a i e cos o changing p ices implying ha he e is a ange o inac i i y;
fi ms keep hei p ices fixed i i is be ween an uppe and lowe h eshold p ice. Infla-
ion e odes he ela i e p ice un il i equals he lowe h eshold, a which poin he fi m
inc ease he p ice o he uppe h eshold. An inc ease in he a e o infla ion unambigu-
ously inc ease he magni ude o p ice changes, bu he effec on he equency o p ice
changes is ambiguous (Sheshinski and Weiss, , P oposi ion ) because a highe a e
o infla ion has wo opposi e effec s on he p ofi abili y o ep icing.
In sec ion  I desc ibe he a ia ion in he equency o p ice adjus men s o e ime and
ac oss i ems. I find ha (i) he equency o p ice inc eases declined o e he pe iod and
is s ongly co ela ed wi h infla ion; (ii) p ices changed on a e age once e e y  mon h
in he high-infla ion pe iod, and e e y  mon h in he low-infla ion pe iod; and (iii)
he e is subs an ial a ia ion in he equency o p ice changes be ween i ems. P ices o
ene gy p oduc s and non-p ocessed ood change equen ly, while se ices change p ices
An inc ease in infla ion educes bo h he benefi and cos o pos poning a p ice change.

in equen ly. In sec ion  I look a he magni ude o p ice adjus men s. I find ha (i )
he a e age size o p ice changes is nega i ely co ela ed wi h he infla ion a e; ( ) he
a e age p ice change (in absolu e alue) inc eased om – pe cen in he high-infla ion
pe iod –, o – pe cen in he low-infla ion pe iod –; and ( i) he e
is subs an ial a ia ion in he magni ude o p ice changes be ween i ems. In sec ion 
I decompose he a ia ion in he cpi infla ion a e in o he a ia ion in he equency
and magni ude o p ice changes. I find ha ( ii) he a ia ion in he infla ion a e is
explained by a ia ion in he equency and no he size o p ice changes. The declining
equency o p ice inc eases and inc easing equency o p ice dec eases bo h con ibu ed
o he a ia ion in infla ion. The inc easing magni ude o p ice inc eases and dec eases
had opposi e effec s on he infla ion a e cancelling each o he ou . Sec ion  concludes
ha nei he ime dependen models no s a e dependen models a e able o explain he
obse ed pa e ns o p ice adjus men .
 Da a
E e y mon h S a is ics No way collec da a o p ice quo es on a wide ange o consume
goods and se ices o p oduce he consume p ice index, cpi (see S a is ics No way (,
) o de ails). Fo example hey eco d he p ice o a bag o  buns wi hou aisins
in a specific shop once a mon h. Such de ailed obse a ions p o ide in o ma ion o p ice
se ing a he e ail le el. On he basis o hese collec ions o da a I ha e cons uc ed
a panel da abase on p ices o , i ems co e ing he  mon hs om Janua y 
o Decembe , all oge he ,, p ice obse a ions. The a e age numbe o
obse a ions pe mon h is ,.
Se e al p ices o he same i em a e eco ded a se e al ou le s. P ice obse a ions o
an i em om he same ou le cons i u e a p ice ajec o y o which he e a e ,. On
a e age he e a e . obse a ions pe ajec o y. The a e age numbe o obse a ions by
i em is , and he a e age numbe o ajec o ies o each i em is . The sampled
i ems change o e ime as new goods a e in oduced while o he goods disappea . The
numbe o i ems in  a e  and in  he e a e  i ems.
Figu e  shows examples o ypical p ice ajec o ies o ou diffe en i ems: Pe ol,

7 8 9 10 11
P ice
1998 1999 2000 2001 2002 2003 2004
Pe ol, unleaded 95 oc ., sel −se ice
10 20 30 40 50
P ice
1994 1995 1996 1997 1998 1999 2000
Toma os
120 140 160 180 200 220
P ice
1997 1998 1999 2000 2001 2002 2003
Pizza wi h bee and mush ooms
300 400 500 600 700
P ice
1997 1998 1999 2000 2001 2002 2003
Wash, clip and blow d y, ladies
Figu e : Examples o p ice ajec o ies.
unleaded  oc ane, sel -se ice; Toma oes; Pizza wi h bee and mush ooms; and Wash,
clip and blow d y, ladies. The ajec o ies show diffe en pa e ns o a ia ion. Pe oleum
and oma o p ices seem o change e e y mon h (and possibly mo e o en), a leas o
his pe iod. In con as hai d esse s seem o keep p ices cons an o some ime, and
a leas o hese hai d esse s, all p ice changes a e inc eases. The p ice o a pizza a e
also kep cons an o long pe iods, bu some imes p ices a e inc eased and some imes
educed.
I ems a e defined wi h a ying deg ees o p ecision. I em  S o e, ce amic (Beha,
AK) is p ecisely defined, while i em  Swea e , lamb’s wool, size g own-up is less
p ecisely defined. The swea e s a e no necessa ily iden ical ac oss fi ms, bu he ou le s
epo he p ice o he same b and, colo and size o he swea e as he p e ious mon h.
Fo his pape i is impo an o compa e p ices o he same p oduc in wo consecu i e
mon hs. Some imes he fi ms epo he p ice o a diffe en p oduc han he p e ious
mon h i i does no longe exis , i he e is a change in he quali y o he good since
las mon h, o i he good is subs i u ed by a new good. . pe cen o he obse a ions

a e flagged wi h ei he o hese p ope ies, which I d op om he da abase. Fo many
ajec o ies he e a e missing alues. In his pape I do no eplace hese wi h impu ed
p ices. When epo ing hei p ices o S a is ics No way, fi ms also epo when a p oduc
is on sale. . pe cen (  obse a ions) o all p ice change obse a ions a e ela ed
o sales. This ac ion is simila o eu o a ea da a, bu much lowe han in he us.
When cons uc ing he cpi, S a is ics No way apply weigh s, ωi , o each i em, i,
eflec ing i s impo ance in he a e age consump ion baske . The weigh s a e compu ed
as he a e age o he ac ion o consume s’ expendi u e o e he las h ee yea s, hence
i changes o e ime. The i ems in his da abase ep esen on a e age . pe cen o he
cpi.
 The F equency o P ice Changes
In his sec ion I documen he a ia ion in he equency o p ice changes o e ime
and how hey a e co ela ed wi h he cpi infla ion a e. I fi s compu e he a e age
mon hly equency o p ice changes o each i em each yea , i , as he ac ion o he
o al numbe o p ice changes o all (p ice change) obse a ions. Then I decompose i
in o he equencies o p ice inc eases and dec eases; = +
i + −
i . The le panel o
Figu e  shows how he mean equency o p ice inc eases, +
, and dec eases, −
, a ies
o e ime. In compu ing he means I ha e weigh ed he i ems by hei cu en cpi-weigh .
The equency o p ice inc eases declined ma kedly om a ound  pe cen in he ea ly
s o a ound  pe cen a e . The p ice (and wage) eeze law in  had a
clea on he equency o p ice inc eases, and he de alua ion o he nok explains he
spike in . The a ia ion in he equency o p ice inc eases is clea ly connec ed o
he a ia ion in he cpi infla ion a e as seen om he igh panel o Figu e  which plo s
he equency o p ice inc eases and dec eases e sus he infla ion a e. The equency
o p ice inc eases is highly co ela ed wi h cpi infla ion wi h a co ela ion coefficien o
., illus a ed by he eg ession line.
P ice dec eases a e p ominen in he da a, bu less equen han p ice inc eases.
While  pe cen o he p ice changes we e p ice dec eases du ing he s and s,
his ac ion was  pe cen a e . The mean equency o p ice dec eases ho e s

Table : Weigh ed mean equency o p ice changes, du a ion and size o
p ice changes by ypes o goods (coicop).
Pe iod nI ems + −D
Non-du able goods – ,,  . . 4.2
(3.2)
– ,,  . . 5.9
(5.5)
Du able goods – ,  . . 5.2
(3.8)
– ,  . . 6.3
(4.9)
Semi-du able goods – ,  . . 9.7
(4.8)
– ,,  . . 9.4
(4.5)
Se ices – ,  . . 10.6
(12.6)
– ,  . . 25.6
(76.0)
Table : Weigh ed mean equency o p ice changes, du a ion
and size o p ice changes by hicp sec o s.
hicp Pe iod nI ems + −D
Unp ocessed ood – ,,  . . 2.1
(2.1)
– ,,  . . 3.8
(4.9)
P ocessed ood – ,,  . . 5.4
(3.0)
– ,,  . . 7.3
(4.1)
Ene gy – ,  . . 3.5
(3.3)
– ,  . . 4.4
(7.1)
Non ene gy indus ial goods – ,,  . . 7.1
(4.6)
– ,,  . . 7.6
(5.0)
Se ices – ,  . . 10.4
(12.3)
– ,  . . 24.9
(74.5)
he hicp ca ego ies show he same pa e n ac oss coun ies: Ene gy p ices change mos
equen ly (excep o Japan and Po ugal) and Se ices leas equen ly. Fo No way,
he p ices change mos equen ly o Unp ocessed ood wi h an implied du a ion o only
. mon hs when infla ion is high and . mon hs when infla ion is low, see Table .
Ene gy p oduc s change almos as equen ly wi h an implied du a ion o . and .
mon hs. Fo he (hicp)Se ices he du a ion is abou  mon hs in he high infla ion
uc s, ca s, PCs and TVs; and Se ices includes en s and epai s, as well as cul u al, ec ea ional and
medical se ices.


0
5
10
15
20
1975 1980 1985 1990 1995 2000 2005
Mean inc ease Mean dec easeπ
10
12
14
16
18
Magni ude o p ice changes, pe cen
0 5 10 15
In la ion, pe cen
P ice inc eases P ice dec eases
Figu e : Le : The cpi in la ion a e (solid line), he mean weigh ed magni ude o p ice
inc eases (dashed line) and dec eases in absolu e alues (do ed line). Righ : The mean
weigh ed magni ude o p ice inc eases (do s) and dec eases in absolu e alues (×s)
plo ed agains he in la ion a e wi h eg ession lines. Annual a es. Pe cen .
pe iod and abou  mon hs in he low infla ion pe iod. Fo he o he g oups he inc ease
in du a ion om he high o he low infla ion pe iod a e mode a e (in absolu e e ms).
The equency o p ice inc eases is lowe in he low infla ion pe iod o all g oups apa
om Ene gy. The equency o p ice dec eases is lowe when infla ion is low o bo h
P ocessed and Unp ocessed ood, while i is highe in he low infla ion pe iod o he o he
g oups, in pa icula Ene gy p oduc s.
 The Size o P ices Changes
To in es iga e he ime a ia ion in he magni ude o p ice changes, I compu e he
weigh ed a e age magni ude o mon hly p ice inc eases and dec eases in pe cen o each
i em and yea , dp+
i and dp−
i . The le panel o Figu e  plo s he cpi-weigh ed mean
inc ease and dec ease o each yea , dp+
and dp−
, oge he wi h he infla ion a e. Bo h
he mean size o p ice inc eases and he absolu e alue o p ice dec eases ha e ended
upwa ds. The mean size o p ice inc eases ose om  pe cen in  o  pe cen in
. Simila ly, he mean p ice dec ease ended upwa ds in absolu e alue om abou
 pe cen o almos  pe cen by he end o he sample. As infla ion came down a
he same ime, he absolu e alue o he size o he p ice inc eases and dec eases a e
nega i ely co ela ed o he infla ion a e. The co ela ion coefficien be ween infla ion
and p ice inc eases is –., while he co ela ion coefficien be ween infla ion and he
absolu e alue o he size o p ice dec eases is –., see he igh panel o Figu e . As

Table : The weigh ed a e age p ice inc ease and dec ease. Pe cen .
– – Full sample Excluding sales
A e age size o p ice inc eases (%)
Median . . . .
Mean . . . .
S d e o . . . .
A e age size o p ice dec eases (%)
Median –. –. –. –.
Mean –. –. –. –.
S d e o . . . .
infla ion does pa o he job in educing ela i e p ices, we would expec a nega i e co -
ela ion be ween p ice dec eases and infla ion. The nega i e co ela ion be ween infla ion
and p ice inc eases is less in ui i e.
While Gagnon () also epo a nega i e co ela ion be ween he magni ude o
p ice inc eases and dec eases e sus infla ion, nei he Nakamu a and S einsson ()
no Dhyne e . al () epo any co ela ion be ween infla ion and he magni ude o
p ice changes. The end in he magni ude o p ice changes documen ed abo e hus
equi es some sc u iny. How obus is his finding? Fi s , he end inc ease in he
magni ude o p ice changes is also p esen in he da a i I emo e ex eme obse a ions.
Thi d, he end is obus i we look a he p oduc s which a e included in he cpi baske
o e he en i e pe iod (i.e. I emo e he i ems ha en e o exi he sample o e ime).
Hence, he end is no explained by changes in he composi ion o goods and se ices.
Fou h, he end inc ease is significan o some bu no all o he coicop di isions and
deli e y sec o s, (documen ed in sec ion on he e ogenei y below).
Columns  and  o Table  epo he weigh ed momen s o he a e age size o p ice
changes o he high-infla ion pe iod (–) and low-infla ion pe iod (–).
The mean a e age size o p ice inc eases and dec eases we e . and –. pe cen in
he low infla ion pe iod, abou – pe cen age poin s highe in absolu e alues han in
he high infla ion pe iod. Because infla ion dec eases he ela i e p ice be ween p ice ad-
jus men s, one would expec p ice inc eases o be la ge han p ice dec eases as obse ed,
(see Ball and Mankiw, ). The es ima es o he low-infla ion pe iod a e simila o
he Eu opean and us da a. Klenow and K y so () find ha he mean a e age
See Figu e  in he May  e sion o his pape .

.05 .1 .15 .2 .25 .3 .35
−50 −40 −30 −20 −10 0 10 20 30 40 50 −50 −40 −30 −20 −10 0 10 20 30 40 50
High in la ion pe iod Low in la ion pe iod
F ac ion
Figu e : His og ams o a e age p ice dec eases (dp−
i ) and inc eases (dp+
i ) by i em o he high
in la ion pe iod – (le ) and low in la ion pe iod – ( igh ). The dis ibu ions
a e unca ed a – and  pe cen .
p ice inc ease is . pe cen and he mean a e age p ice dec ease is –. pe cen in he
us. Dhyne e . al () epo ha he a e age p ice inc ease in he eu o a ea is .
pe cen and he a e age p ice dec ease is –. pe cen .
To help unde s and he inc ease in mean size o p ice changes o e ime, I plo he
his og ams o he a e age size o p ice changes by i em o he high-infla ion and low
infla ion pe iods in Figu e . No e ha he e a e wo his og ams in diffe en colo s o
each pe iod, one o p ice dec eases and one o p ice inc eases. The ac ion o smalle
p ice changes (below  pe cen ) a e abou he same o bo h pe iods. The ac ion o
p ice changes be ween  and  pe cen (in absolu e alue) is smalle o bo h dec eases
and inc eases in he low infla ion pe iod, while he ac ion o p ice changes be ween 
and  pe cen is la ge . Also he a ails o he dis ibu ions a e a e , especially o
p ice inc eases. No e ha he combined dis ibu ions o he a e age p ice dec eases and
inc eases pe i em a e win peaked.
Fo comple eness, Column  o Table  epo s he o e all weigh ed median, mean and
s anda d e o o he a e age magni udes o p ice inc eases and dec eases. The median
and mean a e age p ice inc ease by i em a e . and . pe cen , while he median and
mean a e age p ice dec eases a e –. and –. pe cen . The ou h column o Table
 epo he a e age size o p ice changes excluding sales ela ed obse a ions. Because
he e a e ela i ely ew sales ela ed p ice changes, he effec o sales on he a e age size
o p ice inc eases and dec eases a e a me e  pe cen age poin . Nakamu a and S einsson
Figu e C in he appendix shows pe cen iles o he yea -specific dis ibu ions o he magni ude o
p ice changes.

0 .05 .1 .15 .2 .25 .3
F ac ion
−50 −40 −30 −20 −10 0 10 20 30 40 50
Figu e : His og am o all obse a ions o
p ice changes unca ed a – and  pe cen .
0 .1 .2 .3 .4 .5
F ac ion
−50 −40 −30 −20 −10 0 10 20 30 40 50
Figu e : His og ams o all p ice dec eases and
inc eases unca ed a – and  pe cen .
() epo a median a e age size o p ice inc eases and dec eases o . and –.
pe cen excluding sales o he us.
He e ogenei y
The e is subs an ial he e ogenei y be ween goods also in he size o p ice changes. The
s anda d e o o p ice inc eases and dec eases a e . and . pe cen o he ull sample
(see Table ). While Figu e  illus a es he dispe sion in he a e age sizes o p ice
inc eases and dec eases ac oss i ems, he his og am in Figu e  shows he dis ibu ion o
he size o all p ice changes. The ze o obse a ions a e omi ed in o de no o o e whelm
he g aph. P ice inc eases a e mo e common han dec eases and he e a e many la ge
p ice changes (in absolu e alues) ep esen ed by he hick ails. Howe e ,  pe cen o
he p ice changes a e less han  pe cen in absolu e alue. Figu e  plo s he sepa a e
dis ibu ions o all p ice dec eases and inc eases, (i.e. escales he ac ions om Figu e
). Fo example abou  pe cen o he p ice dec eases a e la ge han – pe cen , and
almos hal o he p ice inc eases a e less han  pe cen . No e ha he his og ams in
Figu e  and  a e domina ed by i ems wi h many obse a ions.
Table  epo s he mean absolu e p ice inc eases and dec eases o he coicop di i-
sions o he high and low infla ion pe iods. The e a e sys ema ic diffe ences be ween and
wi hin he di isions. We see ha he mean sizes o he p ice changes a e la ge o Clo h-
ing and oo wea wi h . and . pe cen o inc eases and dec eases when infla ion is
low, compa ed o he o he p oduc ca ego ies. The size o p ice changes a e smalle o

Table : The mean absolu e size o p ice inc eases and dec eases
by coicop di ision and high and low in la ion pe iod. Pe cen .
Inc eases Dec eases
coicop Di ision – – – –
 Food and non-alcoholic be e ages 11.5 13.6 10.6 11.9
 Alcoholic be e ages, obacco and
na co ics
4.5 6.0 3.6 6.1
 Clo hing and oo wea 25.5 44.2 22.0 29.5
 Housing, wa e , elec ici y, gas and
o he uels
5.9 10.8 4.9 9.2
 Fu nishings, household equipmen
and ou ine household main enance
11.9 14.5 10.3 12.7
 Heal h 7.1 9.5 5.7 7.1
 T anspo 7.4 4.4 3.5 4.0
 Communica ion 5.8 7.8 4.7 9.5
 Rec ea ion and cul u e 9.9 13.7 8.7 11.6
 Educa ion 9.6 6.2 2.8 15.5
 Res au an s and ho els 3.7 13.3 2.6 12.4
 Miscellaneous goods and se ices 8.3 9.9 8.7 10.1
Alcohol and obacco, Communica ion, T anspo , and Heal h a ying be ween . and .
pe cen in absolu e alue. Fo all di isions he absolu e size o p ice changes a e highe
in he low infla ion pe iod compa ed o he high infla ion pe iod wi h he excep ion o
p ice inc eases o T anspo and Educa ion. In pa icula he absolu e size o p ice de-
c eases we e highe in he low infla ion pe iod o Educa ion and Res au an s and ho els.
Figu e C in he appendix plo s he dis ibu ions o he size o p ice changes wi hin he
coicop di isions. I shows ha he dis ibu ions a e all singe peaked wi h many small
p ice changes, bu he deg ee o peakedness diffe . The coicop di isions Clo hing and
oo wea , Communica ion, and Rec ea ion and cul u e possess less peaked dis ibu ions
han pa icula ly Alcoholic be e ages and obacco, T anspo , and Educa ion.
Rega ding ypes o p oduc s, Table  also shows ha he absolu e size o p ice changes
a e la ge in he low infla ion pe iod han in he high infla ion pe iod o all ca ego ies.
Semi-du able goods change p ices by he la ges amoun s. Fo hicp p oduc ca ego ies,
we see om he bo om panel o Table  ha p ices o Non-ene gy indus ial goods and
Unp ocessed ood also change by la ge amoun s (– pe cen on a e age). P ices o
Ene gy goods adjus by he smalles amoun wi h an a e age size o p ice inc eases o .


Table : The mean abolu e size o p ice inc eases and dec eases by ypes o goods.
Inc eases Dec eases
coicop – – – –
Non-du able goods 8.0 8.5 9.6 10.6
Du able goods 6.1 7.1 7.9 9.4
Semi-du able goods 17.5 20.5 23.7 33.8
Se ices 5.3 9.6 8.2 8.8
hicp
Unp ocessed ood 12.1 13.0 14.5 17.8
Ene gy 2.0 4.0 7.0 7.5
P ocessed ood 8.1 8.8 8.8 9.2
Non ene gy indus ial goods 11.2 12.6 14.2 18.5
Se ices 5.6 9.6 8.5 9.0
1 5 10 20 40 80
The size o p ice inc eases
5 10 20 30 50
The size o p ice dec eases
Figu e : The size o p ice inc eases plo ed on
he e ical axis agains he absolu e
size o p ice dec eases. Log scales.
1 10 20 40 60
i eq
1 10 20 30 50 100 150
Figu e : The equency o p ice inc eases
plo ed on he e ical axis agains he
size o p ice inc eases. Log scales.
pe cen when infla ion is high and wi h . pe cen when infla ion is low.
In Figu e  we see a s ong posi i e co ela ion be ween he a e age size o p ice
inc eases and dec eases o each i em, which was also de ec ed in he eu o a ea (see Dhyne
e . al, , Figu e ). The co ela ion coefficien be ween he size o p ice inc eases and
dec eases is .. Howe e , a ew goods ha e a la ge educ ion in p ices on a e age while
he a e age p ice inc ease is close o ze o and ice e sa. Fu he mo e, Figu e  shows
a weak, albei significan endency ha i ems which p ices inc ease mo e o en, adjus
by a smalle size, indica ing ha he size o p ice inc eases may be posi i ely ela ed o
du a ion. The co ela ion coefficien be ween he (log) equency o p ice inc eases and
(log) size o p ice inc eases is –.. The e is no any simila ela ionship be ween he

0 .02 .04 .060 .02 .04 .060 .02 .04 .06
−50 −40 −30 −20 −10 0 10 20 30 40 50 −50 −40 −30 −20 −10 0 10 20 30 40 50
1 p oduc 2−5 p oduc s
6−10 p oduc s 11−50 p oduc s
51−100 p oduc s 101−200 p oduc s
Figu e : His og ams o non-ze o p ice changes by he numbe o
p oduc s pe i m. T unca ed a – and  pe cen .
equency and size o p ice dec eases.
The la ge numbe o small p ice changes a e no consis en wi h s a e dependen mod-
els whe e fi ms ace a fixed cos o ep icing. Lach and Tsiddon () a gue ha many
small p ice changes illus a ed by he peaked dis ibu ions o non-ze o p ice changes, in
combina ion wi h a high a e age p ice change is, howe e , consis en wi h menu cos
when fi ms sell many p oduc s and i he e a e economies o scope in p ice adjus men s
(see also Mid igan, ). To in es iga e his hypo hesis I plo his og ams o non-ze o
p ice changes o ca ego ies o mul i-p oduc fi ms in Figu e . The his og am in he
op le shows he size p ice changes o fi ms epo ing only one p ice, he op igh
panel shows he size p ice changes o fi ms epo ing p ices o – p oduc s and so on.
We see ha small p ice changes in single p oduc fi ms a e as equen as small p ice
changes in mul i-p oduc fi ms. Su p isingly, he his og ams o fi ms epo ing mo e
han  p oduc s in a single mon h is no single peaked a ound ze o, exac ly wha we
would expec o single p oduc fi ms i he e a e economies o scale in p ice se ing.

 Con ibu ions o he in la ion a e
Sec ion  and  show ha bo h he mean equency and he magni ude o p ice changes
a e co ela ed wi h infla ion, in pa icula he equency o p ice inc eases. A simple
way o illus a e hei pa ial con ibu ion o he a ia ion in infla ion and in pa icula
he pe iod o disinfla ion om mid-s, is o decompose he infla ion a e in o he
equencies and he magni udes o p ice inc eases and dec eases. I hen cons uc ou
condi ional es ima es o cpi infla ion allowing only one componen o a y a a ime
while holding he o he cons an a hei means, and compa e he co ela ion be ween
he condi ional es ima es o cpi infla ion wi h cpi infla ion i sel .
Fo mally, infla ion is a weigh ed a e age o i em specific p ice changes,
ˆπ =X
i
ωi dpi ,()
whe e ˆπ is he a e age mon hly infla ion a e in yea , and dpi is he a e age mon hly
p ice change o i em iin yea .ωi is he cpi weigh o i em iin yea .dpi is equal
o he equency o p ice changes ( he ex ensi e ma gin), i , imes he magni ude o
non-ze o p ice changes ( he in ensi e ma gin), dp∗
i ,
dpi = i dp∗
i .()
The a e age size o non-ze o p ice changes o i em iin yea , can be decomposed in o
he he a e age size o p ice inc eases, dp+
i , and dec eases, dp−
i , weigh ed by hei ela i e
equencies:
dp∗
i = +
i
i
dp+
i + −
i
i
dp−
i .()
Hence, om ()–() he es ima e o cpi infla ion is he weigh ed p oduc -sum o i em
specific equencies and magni udes o p ice changes:
ˆπ =X
i
ωi i dp∗
i =X
i
ωi  +
i dp+
i + −
i dp−
i ()
Figu e  shows he mean adjus ed annualized ˆπ wi h he obse ed cpi infla ion a e,

0 5 10 15
Pe cen
1975 1980 1985 1990 1995 2000
πˆπ
Figu e : cpi in la ion π (solid line) and (mean adjus ed) p edic ed
in la ion a e, ˆπ (dashed line). Annual a es. Pe cen .
π . We see ha ˆπ acks π ex emely well, wi h a co ela ion coefficien o ..
No e ha () diffe s om he measu e in Klenow and K y so () who decompose
he infla ion a e in o he mean a e age weigh ed equencies and magni udes o p ice
changes: ˆπ = dp∗
= +
dp+
+ −
dp−
( hei equa ion (.)). Compu ing hei p oposed
es ima e o infla ion wi h he p esen da a yields a co ela ion coefficien wi h he cpi
infla ion a e o . which is conside ably lowe .
I hen cons uc ou condi ional es ima es o cpi infla ion, deno ed as ˆπ | +,ˆπ | −,
ˆπ |dp+, and ˆπ |dp−, whe e I allow only one componen o a y a a ime while holding he
o he h ee componen s cons an a hei means:
ˆπ | +=X
i
ωi  +
i dp+
i+ −
idp−
i,ˆπ |dp+=X
i
ωi  +
idp+
i + −
idp−
i
ˆπ | −=X
i
ωi  +
idp+
i+ −
i dp−
i,ˆπ |dp−=X
i
ωi  +
idp+
i+ −
idp−
i 
Fo example, ˆπ | +is he p edic ed infla ion a e when he a e age equency o p ice
inc eases a ies as obse ed while holding he o he h ee componen s cons an a hei
means: −
i, dp+
i,and dp−
i.
The ou panels o Figu e  displays ˆπ | +,ˆπ | −,ˆπ |dp+and ˆπ |dp−, oge he wi h
π . We see ha he decline in he equency o p ice inc eases ( op le panel), he
inc ease in he equency o p ice dec eases (bo om le ), and he inc eased magni ude
The means o ˆπ and π a e . and . pe cen .
No e ha cons uc ing he cpi om he obse a ions o indi idual p ices is a complica ed p ocedu e,
which in ol es adjus ing o quali y, egional diffe ences, impu ing p ices, and weigh ing obse a ions
(see S a is ics No way, ). Conside ing he simple algo i hm () and ha I do no ha e he ull se
o obse a ions used o cons uc he cpi one should no expec a pe ec fi .

Appendix
A Da a
Today he No wegian cpi is compu ed om mon hly da a o  ep esen a i e goods
and se ices om app oxima ely  fi ms. Once a yea he ep esen a i e goods and
se ices a e e ised. The sample o fi ms is o a ed so ha a fi m is included o a
maximum o  yea s ( mon hs).
The p ice da a a e epo ed mon hly by he fi ms ei he by comple ed o ms o scanne
da a. The quali y o he obse a ions a e e alua ed and e ised be o e used o cons uc
he cpi. The e ision s a us, i.e. i he p ice obse a ion is impu ed o co ec ed, s a us
o he i em i sel , and whe he he obse a ion is used o no in he cpi is known. The e
a e missing obse a ions in he sample esul ing in b eaks in he ajec o ies.
I ems ep esen ed by an index a e excluded om he da a se used in his pape .
I ha e emo ed , obse a ions whe e he i em is no offe ed anymo e, has
changed in quali y om he p e ious mon h, o is a new i em.
The numbe o obse a ions pe mon h a ies be ween , and ,. Figu e A,
le panel, shows ha he numbe o obse a ions pe mon h declines s eadily om an
a e age o , in  o , in  o hen o inc ease o , in . The
igh panel o Figu e A shows ha he e is no sys ema ic a ia ion be ween diffe en
mon hs. Figu e A illus a es he numbe o obse a ions by coicop g oups o e ime
wi h he numbe o obse a ions in  o he igh .
10,000 20,000 30,000 40,000 50,000
1975 1980 1985 1990 1995 2000
20,000 30,000 40,000 50,000
Jan Feb Ma Ap May Jun Jul Aug Sep Oc No Dec
Figu e A: The a ia ion in he numbe o obse a ions by yea (le ) and by mon h ( igh )
1
2
3
4
5
6
7
8
9
10
11
12
COICOP Di ision
1975 1980 1985 1990 1995 2000 2005
Figu e A: The dis ibu ion o obse a ions ac oss coicop g oups o e ime.


B Tables
Table B: Mean equency o p ice changes and mean p ice du a ion in mon hs by coicop
g oups ( h ee-digi le el) and classes ( ou -digi le el).
coicop G oup/Class n +D dp+dp−
 Food ,, . . 4.4
(4.2) . .
 B ead and ce eals ,, . . 6.0
(1.8) . .
 Mea ,, . . 2.6
(5.0) . .
 Fish and sea ood , . . 3.7
(1.1) . .
 Milk, cheese and eggs , . . 5.7
(2.1) . .
 Oils and a s , . . 3.5
(0.9) . .
 F ui , . . 2.4
(2.9) . .
 Vege ables , . . 2.4
(2.5) . .
 Suga , jam, honey, chocola e and
con ec ione y
, . . 9.0
(5.2) . .
 Food p oduc s n.e.c. , . . 6.7
(2.1) . .
 Non-alcoholic be e ages , . . 4.3
(2.6) . .
 Coffee, ea and cocoa , . . 2.3
(1.3) . .
 Mine al wa e s, so d inks, ui
and ege able juices
, . . 6.2
(2.0) . .
 Alcoholic be e ages , . . 5.1
(1.0) . .
 Spi i s , . . 4.4
(0.3) . .
 Wine , . . 5.7
(0.7) . .
 Bee , . . 5.4
(1.1) . .
 Tobacco , . . 8.6
(1.4) . .
 Clo hing , . . 8.5
(3.6) . .
 Clo hing ma e ials , . . 13.8
(2.5) . .
 Ga men s , . . 7.6
(3.0) . .
 O he a icles o clo hing and
clo hing accesso ies
, . . 12.6
(3.5) . .
 Cleaning, epai and hi e o
clo hing
, . . 7.7
(5.3) . .
 Foo wea , . . 8.5
(2.6) . .
 Shoes and o he oo wea , . . 8.4
(2.5) . .
 Repai and hi e o oo wea , . . 14.1
(2.2) . .
 Ac ual en als o housing , . . 13.0
(.). .
 Main enance and epai o he dwelling , . . 5.9
(3.0) . .
 Ma e ials o he main enance and
epai o he dwelling
, . . 5.9
(3.0) . .
Table B con inues on nex page.

Table B con inued.
coicop G oup/Class n +D dp+dp−
 Elec ici y, gas and o he uels , . . 6.7
(8.2) . .
 Elec ici y , . . 7.3
(11.6) . .
 Liquid uels , . . 1.3
(0.1) . .
 Solid uels , . . 12.3
(3.9) . .
 Hea ene gy  . . 2.4
(0.0) . .
 Fu ni u e and u nishings, ca pe s and
o he floo co e ings
, . . 8.5
(2.5) . .
 Fu ni u e and u nishings , . . 8.4
(2.6) . .
 Ca pe s and o he floo co e ings , . . 9.0
(1.7) . .
 Household ex iles , . . 10.2
(2.3) . .
 Household ex iles , . . 10.2
(2.3) . .
 Household appliances , . . 5.3
(1.6) . .
 Majo household appliances
whe he elec ic o no
, . . 5.2
(1.3) . .
 Small elec ic household appliances , . . 7.1
(1.2) . .
 Repai o household appliances  . . 2.6
(.). .
 Glasswa e, ablewa e and household u ensils , . . 10.8
(7.0) . .
 Tools and equipmen o house and ga den , . . 10.6
(5.1) . .
 Majo ools and equipmen , . . 8.9
(0.6) . .
 Majo ools and equipmen , . . 8.9
(0.6) . .
 Small ools and miscellaneous
accesso ies
, . . 10.9
(5.5) . .
 Small ools and miscellaneous
accesso ies
, . . 10.9
(5.5) . .
 Goods and se ices o ou ine household
main enance
, . . 8.1
(6.7) . .
 Non-du able household goods , . . 7.6
(7.6) . .
 Domes ic se ices and household
se ices
, . . 9.5
(1.4) . .
 Medical p oduc s, appliances and equipmen , . . 9.2
(5.0) . .
 Pha maceu ical p oduc s , . . 6.3
(1.6) . .
 O he medical p oduc s , . . 7.8
(2.2) . .
 The apeu ic appliances and
equipmen
, . . 16.2
(4.0) . .
 Ou pa ien se ices  . . 14.7
(4.0) . .
 Medical se ices  . . 19.9
(.). .
 Den al se ices  . . 12.0
(0.0) .
 Pa amedical se ices  . . 17.1
(4.2) . .
Table B con inues on nex page.

Table B con inued.
coicop G oup/Class n +D dp+dp−
 Pu chase o ehicles , . . 3.0
(1.7) . .
 Mo o ca s , . . 2.8
(1.4) . .
 Mo o cycles , . . 8.1
(0.9) . .
 Bicycles , . . 7.0
(0.3) . .
 Ope a ion o pe sonal anspo equipmen , . . 8.1
(30.6) . .
 Spa e pa s and accesso ies o
pe sonal anspo equipmen
, . . 8.5
(1.6) . .
 Fuels and lub ican s o pe sonal
anspo equipmen
, . . 1.3
(1.5) . .
 Main enance and epai o
pe sonal anspo equipmen
, . . 9.3
(3.3) . .
 O he se ices in espec o
pe sonal anspo equipmen
, . . 46.9
(90.7) . .
 T anspo se ices , . . 12.7
(3.8) . .
 Passenge anspo by ailway , . . 14.6
(4.6) . .
 Passenge anspo by oad , . . 14.7
(3.0) . .
 Passenge anspo by ai  . . 8.6
(0.0) . .
 Passenge anspo by sea and
inland wa e way
, . . 11.6
(1.4) . .
 Pos al se ices  . . 20.4
(3.0) .
 Pos al se ices  . . 20.4
(3.0) .
 Telephone and ele ax equipmen , . . 4.1
(3.1) . .
 Telephone and ele ax se ices , . . 16.7
(25.6) . .
 Audio- isual, pho og aphic and
in o ma ion p ocessing equipmen
, . . 6.4
(3.5) . .
 Equipmen o he ecep ion,
eco ding and ep oduc ion o
sound and pic u es
, . . 5.5
(1.9) . .
 Pho og aphic and cinema og aphic
equipmen and op ical ins umen s
, . . 7.4
(4.0) . .
 In o ma ion p ocessing equipmen , . . 4.1
(3.0) . .
 Reco ding media , . . 11.4
(2.5) . .
 Repai o audio- isual,
pho og aphic and in o ma ion
p ocessing equipmen
 . . 2.5
(0.0) . .
 O he majo du ables o ec ea ion and cul u e , . . 12.6
(2.4) . .
 Majo du ables o ou doo
ec ea ion
, . . 12.2
(1.2) . .
 Musical ins umen s and majo
du ables o indoo ec ea ion
, . . 14.0
(4.4) . .
 O he ec ea ional i ems and equipmen ,
ga dens and pe s
, . . 10.4
(8.6) . .
Table B con inues on nex page.

Table B con inued.
coicop G oup/Class n +D dp+dp−
 Games, oys and hobbies , . . 12.5
(3.1) . .
 Equipmen o spo , camping and
open-ai ec ea ion
, . . 16.2
(13.0) . .
 Ga dens, plan s and flowe s , . . 4.8
(3.7) . .
 Pe s and ela ed p oduc s , . . 8.4
(1.2) . .
 Rec ea ional and cul u al se ices , . . 12.7
(6.2) . .
 Rec ea ional and spo ing se ices  . . 9.4
(5.1) . .
 Cul u al se ices , . . 14.4
(6.3) . .
 Newspape s, books and s a ione y , . . 9.3
(6.3) . .
 Books , . . 14.3
(3.8) . .
 Newspape s and pe iodicals , . . 4.4
(2.9) . .
 S a ione y and d awing ma e ials , . . 16.0
(4.8) . .
 Package holidays  . . 9.2
(.). .
 P e-p ima y and p ima y educa ion  . . 13.3
(.). .
 Seconda y educa ion  . . 13.0
(0.8) . .
 Te ia y educa ion , . . 12.3
(0.9) . .
 Ca e ing se ices , . . 15.2
(4.8) . .
 Res au an s, ca es and he like , . . 15.2
(5.0) . .
 Can eens , . . 15.4
(2.4) . .
 Accommoda ion se ices , . . 8.2
(3.6) . .
 Pe sonal ca e , . . 8.6
(2.6) . .
 Hai d essing salons and pe sonal
g ooming es ablishmen s
, . . 10.2
(1.2) . .
 Elec ic appliances o pe sonal
ca e
, . . 8.0
(1.5) . .
 O he appliances, a icles and
p oduc s o pe sonal ca e
, . . 7.6
(2.7) . .
 Pe sonal effec s n.e.c. , . . 12.1
(5.9) . .
 Jewelle y, clocks and wa ches , . . 11.7
(4.6) . .
 O he pe sonal effec s , . . 12.4
(7.7) . .
 Social p o ec ion  . . 20.4
(6.6) . .
 Insu ance  . . 4.0
(.). .
 Financial se ices n.e.c. , . . 48.2
(58.0) . .
No es: n.e.c. is sho o no elsewhe e classified.

C Figu es
0 10 20 30 40 50
1975 1980 1985 1990 1995 2000
0 10 20 30 40
1975 1980 1985 1990 1995 2000
0 10 20 30 40
1975 1980 1985 1990 1995 2000
0 10 20 30
1975 1980 1985 1990 1995 2000
Figu e C: The annual dis ibu ions o he mon hly equency o p ice inc eases ( op le ), he
equency o p ice dec eases ( op igh ), he a e age p ice inc ease (bo om le ), and he a e age
p ice dec ease (bo om igh ). The uppe and lowe ends o he dashed lines ep esen he  h
and  h pe cen iles, he do s ma king he uppe and lowe ends o he solid lines ep esen he
 h and  h pe cen iles, he ho izon al lines ep esen he median, and he solid lines
ep esen he means. Pe cen .
0 .05 .10 .05 .10 .05 .1
−40 −20 0 20 40 −40 −20 0 20 40 −40 −20 0 20 40 −40 −20 0 20 40
1234
5678
9 10 11 12
Densi y
Figu e C: His og am o all non-ze o p ice changes in pe cen by coicop di ision. The
dis ibu ions a e unca ed a – and  pe cen . The coicop di isions a e
: Food and non-alcoholic be e ages; : Alcoholic be e ages, obacco and na co ics;
: Clo hing and oo wea ; : Housing, wa e , elec ici y, gas and o he uels;
: Fu nishings, household equipmen and ou ine household main enance; : Heal h;
: T anspo ; : Communica ion; : Rec ea ion and cul u e; : Educa ion;
: Res au an s and ho els; : Miscellaneous goods and se ices.
