Euro area inflation: gaining momentum below the hood
Today Eurostat released April 2011 inflation for the Euro area. Prices are increasing at a 2.8% annual pace, up from 2.7% in March and very much above the ECB’s comfort zone of around but slightly below 2%.
Today’s report is the second release and includes the cross section of price gains below the headline number. The first ‘flash’ estimate does not specify the breakdown.
Inflation’s hitting all sectors, goods (primarily) and services alike, via inputs to production.
READ MORE AFTER THE JUMP!April core prices rose 1.6% over the year. The goods-price inflation is flowing into the the service-sector as well – headline service-sector inflation is 2.0% in April, up from its low of 1.2% one year ago. There may be some seasonal distortions here associated with the Easter holiday, but the upward momentum has been established.
Price gains at the country level are broad based.
2% annual inflation is increasingly ubiquitous for key countries, Periphery and Core core alike. Below is the diffusion of 2% annual price gains, where an index value above 50 indicates that the majority of component prices are rising at a 2% rate. The legend indicates the longer-term average diffusion of price gains.
Germany is still seeing the majority of annual price gains below 2% – the current index is 43 – but the breadth of 2% inflation is increasing beyond its longer-term average of 34.8. In Spain and Italy, current inflation diffusion indices are likewise increasing, where Spanish price gains are broad, 55.6 in April.
And it’s not just VAT taxes.
The chart below illustrates the tax-adjusted inflation rate across the Eurozone (ex Ireland, unfortunately, whose data is unavailable, Austria, Estonia and Cyprus). This series is lagged one month.
The tax-adjusted inflation rate assumes that all tax hikes are passed fully through to final goods prices. It gives a proxy for the inflation effect of fiscal austerity (hike in VAT, for example).
Although the uptick in inflation is warranted at this stage in the recovery, especially in the core, the momentum in prices can no longer be attributed to taxes only – it’s broader than that. Greece, for example, saw its inflation rate peak around 5.6% in September 2010 when its tax-adjusted inflation rate (inflation excluding VAT) was just 1.1%. Now, however, the headline and tax-adjusted inflation rates are converging, 4.5% vs 1.7% in March. Much of the tax-adjusted inflation can be attributed to food and energy; nevertheless, the base effects of the VAT hikes are wearing off.
Tricky times for Euro area policy makers when the Core AND the Periphery are showing such broad price gains. Meanwhile, the Periphery are contributing little by way of growth.
Gaining momentum below the hood?
yoy core HICP:
Does it have an engine?
From where are you getting your data? And when? According to Eurostat (you can see the data here through March but they haven’t updated the April numbers yet on the website), core inflation seems to be picking up quite smartly in many countries. Furthermore, Spain’s core inflation is not 1.1% – on a harmonized basis, it’s 1.5% in April (on Datastream) and 1.2% in March, Italy’s at 2.1%.
Here’s what I see (March numbers from the link above and April numbers from Datastream). Yes, a bit of an engine.
CPI – EXCLUDING ENERGY, FOOD, ALCOHOL & TOBACCO NADJ4/15/20113/15/2011BELGIUM1.7%1.8%AUSTRIA2.7%2.0%ESTONIA2.2%1.7%FRANCE1.2%0.9%GERMANY1.6%0.9%GREECE1.6%1.8%IRELAND0.1%-0.6%ITALY2.1%2.1%SPAIN1.5%1.2%LUXEMBOURG2.6%2.4%MALTA0.9%1.4%NETHERLANDS1.3%1.3%PORTUGAL2.6%2.2%SLOVENIA-0.8%-0.6%SLOVAKIA1.6%1.3%FINLAND1.8%1.8%EURO 171.6%1.3%
Let me give the table another go:
CPI – EXCLUDING ENERGY, FOOD, ALCOHOL & TOBACCO NADJ
BELGIUM 1.7% 1.8%
AUSTRIA 2.7% 2.0%
ESTONIA 2.2% […]
My numbers come from Eurostat. (You had me thinking I had done something wrong for a moment.) They’re year on year numbers or what Eurostat callls the “12 month moving average”:
OK – that measure’s kind of wierd, as it puts a lot more weight on historical trends. It takes the inflation y/y using the 12-month moving average at each point, a very lagged and smoothed version of inflation (since you’re taking the annual inflation rate of a base that is a historical 12-month average). Above, I quoted the simple Y/Y growth rate from April 2010 to April 2011.
If I was going to use moving averages, I would look at the 6-month annualized average growth rate – the data are not seasonally-adjusted, so the 6-month rate rather than a 3-month rate, for example, partially compensates for this. These are my calculations from the monthly index, but the trend across most economies is upward.
4/2011 3/2011 2/2011
BELGIUM 1.7% 1.9% 1.4%
AUSTRIA 4.2% 3.8% 2.7%
ESTONIA 1.0% 0.1% 0.2%
“OK – that measure’s kind of wierd, as it puts a lot more weight on historical trends. It takes the inflation y/y using the 12-month moving average at each point, a very lagged and smoothed version of inflation (since you’re taking the annual inflation rate of a base that is a historical 12-month average). Above, I quoted the simple Y/Y growth rate from April 2010 to April 2011”
Excuse me for thinking that things at Eurostat were simple.
So, I went to Eurostat and selected the index data and computed the yoy changes directly. Now I’m confused.
For example take Germany. Germany’s HICP core index was 107.0 in April and 105.9 a year earlier giving an increase of 1.0%. This is different from the “12 month moving average”.
Please explain the discrepancy as this is important. Your interpretation of Eurostat’s arcane practices has been helpful in the past.
Oops. That would be 105.3 or a 1.5% increase. I was looking at March 2010.
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