January HICP and CPI

There are seasonals in the price indices, and they happen to matter when comparing January with December. Both HICP and CPI ‘should’ fall by about 0.7% in Jan. HICP sa changed little from Oct to Nov, but dipped about 0.5% in Dec. It has dipped about 0.1% further sa in Jan. CPI, mainly due to declining mortgage costs, fell almost 1% sa in both Nov and Dec, and has fallen a further 1% in Jan. The main difference between the two is owner-occupied housing costs, excluded from the HICP. It would be nuts to annualise the sa CPI fall of the last three months, would imply minus 12% or more for the year. Interest rates can decline only a little further.

The annual % change in CPI is now about zero. But the last three months sa has shown an average CPI drop of 1% per month. The (preferable, in my view) HICP seems to be dropping about 0.3% per month for the last two months, would give an annual fall about 4%. The twelve-month HICP figure (meaningless) is still showing +1.1%. I reckon, for what it is worth, that HICP could begin to drop (sa) a bit quicker than CPI over the next few months. There is more sterling pass-through on the way, but maybe not much more from ECB.

These January figures are consistent with recent forecasts of significant price declines for 2009 over 2008. Numbers like minus 3 or 4% for 2009 over 2008 are plausible, even though it is early days. There are obvious implications for indirect tax revenue, and for informally index-linked income variables.

9 replies on “January HICP and CPI”

very useful post, thanks
Q : Which other eurozone countries are likely to show deflation (or which arent, if its quicker!)?

An interesting feature of the data today is that HICP services inflation actually rose in January, and actually grew at its fastest rate in well over a year. The reduction in inflation seems to be entirely imported, through lower interest rates, food prices and energy costs.

Presumably, this will change in the next number of months, as wage moderation and slower domestic demand force prices down. One aside though is that presumably the Govt pension levy (as opposed to a pay reduction) is a transfer from various service providers (e.g. local authorities) to central Government. As such, Government generated inflation may not fall very much at all over the next year, limiting the overall decline.

Worth noting that part (perhaps large part) of the rise in services inflation due to an increase in private health insurance premiums in Jan. Also, recent fall in HICP due (mainly?) to falling energy prices – some of the latter is already being reversed with increase in petrol prices

Brian, Eurostat will release Jan figs on Feb 27th. for each country. All that is available now is ‘flash’ estimate for Eurozone as a whole. Figure is +1.1% year to Jan, versus ditto (HICP) for Ireland.

Interesting to compare the pace of disinflation in Ireland with that of the euro zone. Looking at the period from June to January, they’re almost identical: Ireland decelerated from 3.9% to 1.1%; the euro zone from 4% to 1.1%. One might have expected a steeper trajectory for Ireland, because of sterling, steeper deterioration in labour market conditions and so on.
The pattern of disinflation across commodity groups is also interesting. The detailed data (available only to December) offer some, though not conclusive, support for the proposition that the pace of disinflation in respect of traded goods (food & beverages, clothing & footwear) has been faster in Ireland than in the euro zone as a whole, while in respect of at least some of the non-traded categories (catering and, ahem, education) it has been slower here.

Not sure I get Ronnie’s point above. Is it not just a reduction in net pay to eg local authority staff, with no consequences I can see for ‘Government generated inflation’?

An aside – the pure carry-over effects (2009 avg versus 2008 avg if indices stick at January level) are already -2.7% for CPI and -1.2% for HICP.


I suppose what I am saying is that the broader Government sector has been a source of significant price pressures in recent years. Taking some pretty old NCC figures, goods and services with the highest rates of inflation were those regulated by Government, such as water supply and refuse services (25.4 per cent), postal services (13.5 per cent), hospital services (11.1 per cent), second level education (10.3 per cent) and outpatient services (7.2 per cent).

I suppose my point is that a pay reduction of 7.5% would have resulted in lower costs for these various service providers in the broader public sector – HSE, local authorities etc, which would have allowed them to contain/reduce these costs. Through a pension levy that accrues to central Government, and bypasses the accounts of these satellite bodies, means that they have the same ‘high wage’ costs as before, and are as likely to generate the same inflationary pressures as before.

Maybe we’re saying the same thing. There ARE no consequences for Government generated inflation. A pay reduction, in contrast, would have had significant implications for Government generated inflation. Thats my only point!

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