In this study, the time series of the Retail Price Index has been taken from the Great Britain ONS data series, with time-series observations that span from 1948 to 2023, thereby a broad time series that incorporates the volatility in Great Britain’s retail prices across many economic cycles and many factors.
To the Retail Price Index has been applied ARCH and GARCH models to determine the volatility of the Retail Price Index variance in the time series observed.
The table and graph below derive from the Retail Price Index time series ARCH model where it’s possible to see how the Blue Line, Realised Volatility, drifts in volatile spikes that are compromising for monetary policy price stability aim, while indeed, determining cumulative Inflationary effects for ordinary consumers and families budgets.
The ARCH variance volatility model of the Retail Price Index time series 1948/2023 highlights an average monthly Retail Price Index percentage increase of 0.40%, while long-run volatility equals 0.86%
Retail Price Index->GARCH variance volatility model, Blue Line=Realised Volatility, pay attention to the spike in Retail Price Index variance volatility.
Retail Price Index 1948/2023 long run volatility 0.91% on average 0.40%. Consider carefully that the time series data observations are monthly. That means on average Retail Price Index basket can increase by 0.40% every month, but the GARCH model derives a higher long-run volatility of the Retail Price Index 0.91%.