Machine learning core inflation

In this article a novel methodology for building core inflation measures is proposed based on the k-means clustering machine learning algorithm. This new methodology is explored using Mexican CPI data in the spirit of getting a clear signal and having good predictions of the inflationary process based on selecting items with low volatility and assigning them to clusters. The results show that the core inflation built captures better the inflation signal and also outperforms the short-term inflation forecasts obtained by the trimmed means method and the core inflation excluding food and energy.