If want to monitor the performance of the economy then we need to use data. Whether it be we unemployment, inflation, or economic growth, data are crucial to tell us how the economy is doing. However, measuring economic variables is not straightforward, and anything that helps us to discern the key trend in a data series can make life a bit easier.
If we were happy to monitor the economy only on an annual basis, we would not need to worry about seasonal variations. However, if we want to watch the economy’s performance more frequently we need to be aware that there are some variables that can change from one month or quarter to the next. The inflation rate is a case in point. Consider Figure 1, which shows the rate of change of the consumer price index (CPI), measured by the percentage change of the index on the previous quarter. The rate has been annualised — in other words, the percentage change has been converted to an annual rate (the rate that would have been observed if the quarter-on-quarter rate had stayed the same for four quarters).
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