Price index numbers for June were published last Thursday. There are consistent seasonals in the Irish numbers, although CSO does not adjust, presumably because the seasonals are small, ranging only from 98.9 to 100.6 for the HICP. But the seasonals are big enough to affect month-to-month comparisons when inflation is around zero, and it is better to adjust. This note uses the 2008 seasonals computed on the data run up to Dec 08 by John Lawlor of DKM mentioned here in an earlier posting.
Seasonal effects are small through most of the year but bigger over year’s end. No statistically significant nit should be left unpicked.
Both HICP and CPI sa fell again in June. HICP has fallen for seven straight months, CPI for eight. The last twelve sa HICP and CPI numbers are, in mom % changes,
sa % Chg HICP CPI
Jul 08 +0.1 +0.1
Aug 08 -0.2 +0.2
Sep 08 +0.2 +0.2
Oct 08 0.0 +0.1
Nov 08 0.0 -0.8
Dec 08 -0.5 -1.1
Jan 09 0.0 -0.9
Feb 09 -0.6 -1.1
Mar 09 -0.4 -0.3
Apr 09 -0.1 -1.0
May 09 -0.6 -0.7
Jun 09 -0.1 -0.3
The HICP peaked in July 08, since which point it is down 2.2% sa. The CPI peaked in October last, and has fallen 6% sa from that point. The HICP is a subset of CPI – about 9.5% of CPI by weight is excluded from HICP, and 6.7% of this is mortgage interest. So the difference between the two is almost entirely mortgage interest.
I have argued elsewhere that mortgage interest (the price of credit, not of a good or service) does not belong in a general index of consumer prices, and I prefer HICP, which has recently been falling more slowly. It was the other way round a couple of years back, when interest rates were rising. There will be another switchback when the ECB gets round to raising rates again. (Don’t ask!).
The June Euro-area figs will be out in the next few days. I expect that they will show that Irish HICP inflation over the last twelve months has run about 2% below the Eurozone average. This is not much of a real-exchange-rate adjustment and it is fair to ask whether it has further to run.
The Govt increased Social Welfare rates of payment by a little over 3% in the October budget, with the increases effective from January 09. Jobseekers’ Allowance, for example, rose 3.3%.
In the October budget documentation, Finance stated that they expected HICP inflation, year 09 versus year 08, to be about +2.2%. At this stage, it looks as if the actual fig could be more like -2.2%, and the real value of the main payment rates (using HICP) is about 5% ahead of where it was last Summer.
CSO have set up a committee to review price index numbers and it is to advise the DG of CSO before year’s end. I prefer HICP to CPI, and the UK, whose RPI has the same mortgage interest problem as our CPI, has begun to place more stress on the HICP. There are of course other options. If you have any views on the best way to measure consumer prices, this is a good time to let CSO know.