Murky and opaque EU
2022.12.21 01:32
Murky and opaque EU
Budrigannews.com – According to officials who spoke with Reuters, statisticians in the euro area are looking into modifying the method by which they incorporate retail energy prices into their official inflation calculations in order to avoid exaggerating the true impact on consumers.
Depending on the contract they are on and whether they receive state subsidies to protect them from price increases, millions of European households have seen dramatically different effects on their power bills this year.
Authorities frequently lack sufficient data on actual prices paid by end users to provide an accurate picture. Economists say that while the European Central Bank is aggressively raising rates to tame double-digit inflation, the error margins could skew inflation expectations if they are not addressed. While euro inflation is unlikely to be distorted in the long run,
The methodologies used by statistics offices in Spain, the Netherlands, and Italy are being revised, while Italy’s office is considering doing so.
On Friday, Eurostat released guidelines on how member states should account for energy compensation measures. The ECB uses Eurostat’s euro-wide inflation print.
Federico Polidoro, head of the consumer price division at the Italian national statistics bureau ISTAT, told Reuters, “The main difficulty for euro zone statistics bureaus is combining the prices of previously stipulated fixed-price contracts with new contracts offered month by month.”
Polidoro stated, “This may have caused an over-estimation of inflation, which would be explained given the information that is available to us,” and he added that statistics offices across the bloc were currently attempting to develop a methodology that was more widely used.
The issue is reasonable the best in the Netherlands, which has freely reported it is updating its expansion procedure.
Inflation in August may have actually been only 7.5-9.6 percent, as opposed to the 12 percent CBS reported from the Dutch statistics office, as the country’s statistics office only took into account new energy contracts because it did not have data on existing contracts.
As falling energy costs will get some margin to be reflected in family gets, the ongoing system will misjudge expansion when energy costs fall, CBS said.
In Spain, measurements office INE has been working for quite a long time to normalize a huge number of information directs sent by service organizations toward revamp its expansion computations. In May, a senior government official predicted that inflation could be approximately two percentage points overstated.
According to the statistics agency INSEE in France, it uses new prices to calculate inflation for only 22% of consumers of power and half of gas, and its calculations are less affected by the fact that local energy prices have increased significantly less than those in the Netherlands.
Reuters was informed by the German statistics office Destatis that it takes into account both existing and brand-new contracts.
However, energy compensation measures are the problem in Germany, according to Morgan Stanley (NYSE:). Jens Eisenschmidt, chief European economist, estimates that a one-time government payment to cover energy bills in December will reduce inflation in the euro area by 0.4 percentage points.
He stated that when Germany implements a cap on energy prices in March, which will also cut costs retroactively for January and February, additional volatility could occur.
According to Eurostat, inflation calculations should only take into account measures that directly affect energy prices and are known to consumers before they buy the energy. However, households’ price pressures are still reduced by other measures like subsidies for past consumption.
A spokesperson for Destatis stated that the energy measures will have an effect on Germany’s inflation print and that the organization would also comment if there was a significant effect.
The issues with the calculations are unlikely to have a significant impact on the overall inflation print for the Euro Area.
Additionally, they are unlikely to have an effect on ECB policy, which aims for medium-term inflation, as they should eventually self-correct.
An ECB spokesperson told Reuters, “Changes in national data due to adjustment in national methodologies are incorporated in future staff projections.”
Still, economists point out that the differences could lead to problems.
Gilles Moec, chief economist for AXA Investment Managers, stated that they are risky due to the fact that inflation prints feed into various payouts and broader inflation expectations.
In countries where the minimum wage is indexed to inflation, at least a fifth of private sector workers in the Euro Area work. For some, it serves as a starting point for wage negotiations.
State pensions are nearly universally indexed, either entirely or in part, to previous inflation. In some nations, rents are also linked to inflation in some way.
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Moec of AXA stated, “The accuracy of the consumer price index is really important, especially in times of high inflation.” In a time when inflation expectations fluctuate, people must have faith in the inflation basket.”
Morgan Stanley’s Eisenschmidt said the “estimation issue” makes takes a chance for financial and money related strategy strength.
Eisenschmidt, a former lead economist in the ECB’s monetary policy strategy division, stated, “It makes it more likely that different policy areas work against each other.”
