Eurostat may revise January inflation in the Eurozone
SOLOMON FIDLER*
How much did inflation fall in the Eurozone in January? The modest fall in German Harmonized Index of Consumer Price inflation to 9.2% year-on-year in January from 9.6% in December suggests Eurostat may need to revise January's eurozone inflation by 0.2- 0.3 of a percentage point from its initial estimate of 8.5% on an annual basis when it releases its final data on February 23.
On 1 February Eurostat had reported an unexpectedly strong fall in inflation from 9.2% in December. Due to technical problems, economic data for Germany was not available when the agency calculated the preliminary numbers. Broadly speaking, inflation in Germany (and the Eurozone) is set to ease sharply to 3% year-on-year by the end of the year and to 2.4% in 2024, helped by pass-through effects linked to price developments of energy in 2022. Structural inflation may remain high for a few more months as producers continue to pass on past increases to the consumer public. Pressures on a number of inflation indicators have eased significantly in recent months.
However, there is an uncertainty in the data level. Unfortunately, this time the German statistical office did not provide any more detailed data beyond the basics on the inflation index. In any case, the methodological uncertainty around inflation figures for December 2022, January and February 2023 is much larger than usual. The government intervenes heavily in the energy market, related to household consumption, but it is unclear in advance to what extent this will be reflected in the data collected by statisticians.
However, the Harmonized Index of Consumer Prices (within the EU) is a measure that makes inflation indices comparable between Eurozone countries. According to the national measure of the Consumer Price Index, consumer price inflation in Germany rose to 8.7% year-on-year in January from 8.6% in December. The two measures of inflation use different weighting schemes and calculation methods. Without the detailed data on the individual components and the new index weights for this year, it is difficult to identify the cause of the divergence between the inflation indicators on a European and national basis.
* Mr Salomon Fiedler is an economist at the investment bank Berenberg Bank.
