The new issue of the International Journal of Central Banking includes this article by Robert Kelly and Kieran McQuinn – here.
The media faithfully reported Eurostat’s flash estimate of yoy inflation in the Eurozone at 0.3% for August on Friday last. The yoy rate says merely that prices were 0.3% higher in August than they had been twelve months previously. Just two pieces of information are employed – today’s number and the number twelve months earlier. The intervening eleven pieces of info are ignored.
What do these eleven observations have to say? Well it is not pretty. The index was unchanged over eight months, and actually fell over four months. The country-by-country numbers are only available for July. Here is what happened over the four months from March.
HICP July % Change over March
Belgium -1.5 Germany +0.2
Greece -0.8 Estonia +0.5
Spain -1.0 Ireland +0.1
Italy -1.6 Cyprus +2.2
Luxembourg -0.5 Latvia +0.8
Austria -0.5 Netherlands +0.1
Portugal -0.1 Slovenia +0.2
Finland -0.3 Malta +4.1
France -0.4 Slovakia +0.2
Half of the 18 countries experienced price falls, half saw increases. The weighted average Eurozone inflation rate over these four most recent months was -0.5%. No large country saw a significant increase but two, Spain and Italy, saw prices fall 1% and 1.6%, hence the weighted average decline.
Using twelve-month rates is well-established but it is hardly best practice. Since the Spring it is clear that the Eurozone has been experiencing a widespread and in some cases rapid fall in prices. With nominal interest rates as low as they can go, and zero real growth, the feared deflation has already commenced. It could even be too late to do too little.
The economic challenges facing Germany are reported in this FT Analysis article.
Micheál Collins of the Nevin Institute is out with a new paper looking at the burden of taxation by income decile by tax-type, and the results are very interesting. From the piece:
Using data from the most recent Household Budget Survey, this paper estimates both the direct and indirect taxation contributions of households. The paper examines, individually and collectively, the direct and indirect tax paid by households across the income deciles, alongside the overall average household contributions. The data is presented at the households and equivalised adult level.
This chart summarises the findings nicely.
Update: Micheál has responded to many of the main points raised in the thread here.
Marcel Fratzscher writes in the FT here.