Home > Uncategorized > Core inflation in the Eurozone

Core inflation in the Eurozone

from Merijn Knibbe

One week before the crucial monthly monetary policy meeting of the board of the ECB and two weeks before the ‘real’ data is published, Eurostat publishes a ‘flash’ estimate of inflation in the Eurozone. This estimate tries to predict headline inflation and plays a key role in the decisions of the board of the ECB. To quote Draghi, from his ‘introductory statements’ to the press conference:

“With regard to price developments, euro area annual HICP inflation was 2.8% in December 2011, according to Eurostat’s flash estimate, after 3.0% in the preceding three months.”

It might become time to add a prediction of core inflation to the ‘flash’ estimate, as core inflation, excluding volatile energy prices, turned out to be a better lode star than headline inflation, after 2008 (graph).

This might have prevented unnecessary increases of the interest rate in 2008 and 2011. Draghi seems to understand this. His statements are subtler and less complacent than those of Trichet and he does grasp and defend the idea of core inflation (though he does not mention its name…). Time to change!

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