Will the real inflation rate please stand up overlooked quirks of a favoured chain-linking technique

Transcription

1 Wll the real nflaton rate lease stand u overlooked qurks of a favoured chan-lnkng technque Dr Jens Mehrhoff*, Head of Secton Busness Cycle, Prce and Proerty Market Statstcs * Jens Ths Mehrhoff, resentaton Deutsche reresents Bundesbank, the author s Statstcs ersonal Deartment onons and does not necessarly reflect the vews of the Deutsche Bundesbank or ts staff. Meetng of the Grou of Exerts on Consumer Prce Indces Page 1

2 Outlne 1. Background & motvaton 2. Sources of devatons 3. Basc ndex theory 4. Understandng the qurk 5. Effect on rce ndex levels 6. Effect on year-on-year rates 7. Effect on average annual nflaton 8. Imact quantfcaton 9. Dscusson & mlcatons 10. Possble way forward 0.8% (Eurostat s flash estmate of euro-area annual nflaton n December 2013) Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 2

3 1. Background & motvaton The Oxford Dctonary of Englsh defnes qurk as a ecular asect of a erson s character or behavour. Clare Jones, Fnancal Tmes, 8 January ( 3): A methodologcal qurk n the calculaton of holday costs n the currency bloc's largest economy heled ush core nflaton n the eurozone to an all-tme low n December... Maro Dragh, Presdent of the ECB, 9 January (ress conference Q&A): The data that came out n December 2013 were essentally the result of a techncal ssue, what some eole would call a qurk, n the statstcs on servces nflaton n Germany. Nota bene: The so-called qurk was nether due to seasonal adjustment nor some eculartes of the German rce statstcs but t was the outcome of the legally bndng lnkng rocedures n the HICP; t, hence, seems lkely that such twsts haened n other countres as well but were not detected. Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 3

4 2. Sources of devatons Accommodaton servces, COICOP grou 11.2, 2013 weght : Because nternet surveys now allow data to be collected from smaller servce rovders, whch are less lkely to charge seasonal remums than larger rovders, the results show sgnfcantly smaller seasonal fluctuatons than revously. In artcular, the July-August and December rce eaks of holday flats have been largely elmnated. Package holdays, COICOP grou 09.6, 2013 weght : Instead of observng ndvdual tour oerators, consumtons segments are now defned by the geograhcal destnaton and the tye of ackage holday (e.g. seasde, mountan). In addton, round trs and cruses have been ncluded newly n the samle; esecally rces of round trs are less subject to seasonal fluctuatons. As a consequence, seasonalty, even n the month of December, s damened consderably. Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 4

5 3. Basc ndex theory The Harmonsed Index of Consumer Prces (HICP) s defned as a chaned Laseyres-tye rce ndex wth annual weght udatng, weghtng reference erod average year y 1 (rce-udated to December), rce reference erod December of the revous year, and current ndex reference erod 2005=100. Short-term monthly Laseyres rce ndex: P 12, y 1: m, y L n 1 m, y 12, y 1 q 12, y 1 y 1 n 12, y 1 y 1 1 q Long-term annually chan-lnked monthly Laseyres rce ndex: n 1 P m, y w 12, y 1 Y 1 ~ : m, Y ~ 0:12, Y 1 12, Y 1: m, Y 0:12,1 12, y 1:12, y 12, Y 1: m, P P P P P P 0 Y L L L L L L y 2.. Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 5

6 4. Understandng the qurk Wthout loss of generalty assume, for the sake of smlcty, that the HICP subndces consst of a sngle good only but stll aly chan-lnkng va December of the revous year. Observed rce of tem n month m of year y: m,y. Decomoston nto non-seasonal and seasonal art: m,y = π m,y σ m,y, where π m,y s the seasonally-adjusted rce and σ m,y s the (multlcatve) seasonal comonent, resectvely, of tem n month m of year y. Note: Seasonalty here refers to the usual seasonal fluctuatons of observed rces m,y,.e. those movements whch recur wth smlar ntensty n the same season each year and not to Regulaton (EC) No 330/2009 layng down detaled rules for the treatment of seasonal roducts that are not avalable for urchase for certan erods n a tycal cyclcal attern. Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 6

7 5. Effect on rce ndex levels Calculate the chan-lnked rce (ndex) of tem n month m n 2013, wth erod 0 equal to December 2011: ~ 12, ,2011, 12, , , ,2011 where s the monthly rce accordng to the new seasonal rofle σ. Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 7

8 6. Effect on year-on-year rates The change from December 2012 to December 2013 n the chan-lnked seres does not ntroduce a ste n the seres: ~ 12, , , , , ,2013. Observe that the change from month m n 2012 to month m n 2013 (m 12) n the chan-lnked seres dffers from the corresondng change: ~ m,2012 m,2012 m,2012 m,2012. m,2012 m,2012 Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 8

9 7. Effect on average annual nflaton Recall: Cov[X, Y] = E[X Y] E[X] E[Y]; f Cov[X, Y] 0 and E[Y] 1, then E[X Y] E[X] ~ 12 m 1 12, m 1 12,2012, m m m,2012 m,2012 m1 12 m 1 m, m, m, m 1 m, , 2012 where X = 2012 and Y = σ 2012 / σ 2012 ; hence, changes n seasonalty are assumed to be unrelated wth rce levels and the volatlty of the new seasonal attern s not too hgh. Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 9

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11 8. Imact quantfcaton Imute the estmated 2013 seasonal attern to December 2011-November 2012 fgures and chan-lnk n order to acheve consstent year-on-year rates throughout the year (lease note that ths analyss s subject to revsons): Table: 2013 average annual nflaton n Germany (n %) Grou Offcal data New season Dfference* Accommodaton servces Package holdays Overall HICP * In ercentage onts. Exected values from changes n seasonalty are ercentage onts for accommodaton servces and +2.1 ercentage onts for ackage holdays. Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 11

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15 9. Dscusson & mlcatons There was no underestmaton of nflaton due to the qurk n December 2013! (Snce then the temorary effect on nflaton rates has vanshed.) Qute the contrary, annual nflaton had been overestmated n Germany from January to November 2013 (see Deutsche Bundesbank, Monthly Reort, Arl 2013, 7); totallng to a dscreancy of just under +0.1 ercentage ont on average from 2012 to 2013 n the euro area. Rather than deceleratng from 0.9% n November 2013, euro-area annual nflaton actually accelerated from 0.7% n November to 0.8% n December. Channg the new rce seres to the seasonal hgh of the old rce seres generated a ermanent uward devaton n overall HICP levels, whch, n turn, gves wndfall benefts to the holders of ndex-lnked debt. Because the annual sub-ndces for the HICP are chan-lnked va the month of December wthout erformng back-calculatons, ths led to marked statstcal dstortons whch serously hamered the nterretablty of the HICP fgures. Potentally, other countres results are adversely affected, too. Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 15

16 10. Possble way forward Any change n defntons, methods, or ractces such as that on the treatment of seasonal roducts can result n roblems wth chan-lnkng. We, thus, need an early warnng system for the methodologcally more nvolved chan ndces along wth a reflecton on Euroean regulatons n terms of how the annual lnkng s erformed and the stance on data revsons. A dfferent aroach to channg that had been dscussed would be annual overla,.e. the same rocedure that s n lace for the System of Natonal Accounts. Hence, we would rely on an annual rce reference erod that, er defntonem, shows no seasonalty. Of course, before such a major change can be ntroduced nto the HICP, we need much more emrcal analyses n order to suort ths relmnary mresson and ensure, based on euro-area wde facts, that a changeover would sgnfcantly ncrease the nformaton value of HICP fgures. In ths sense, ths resentaton seeks to trgger a dscusson on the subject rather than beng defntve on the matter. Partcularly, exerences from Member States wth a natonal CPI that follows a dfferent lnkng strategy than the HICP would be very valuable. Jens Mehrhoff, Deutsche Bundesbank, Statstcs Deartment Meetng of the Grou of Exerts on Consumer Prce Indces Page 16