Seasonal Adjustment of the Harmonised Index of Consumer Prices - - PowerPoint PPT Presentation

Seasonal Adjustment of the Harmonised Index of Consumer Prices (HICP) – Main Findings of an ESCB Task Force

Martin Eiglsperger

European Central Bank – DG Statistics

Meeting of the Ottawa Group, Wellington, 4 - 6 May 2011

The views expressed in this presentation are those of the author and do not necessarily reflect the views of the European Central Bank.

Consumer Price Index Manual (ILO et al.)

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• Chapter 13: “Publication, Dissemination and User

Relations”

• “Seasonal adjustment and smoothing
• f the index”
• Chapter 22: “The Treatment of Seasonal Products”
• Para. 22.7: “… rolling year indices

can be regarded as seasonally adjusted price indices …”

• Para. 22.61: “more sophisticated methods” of seasonal

adjustment, but rolling year indices as targets

 Central Banks’ views on seasonal adjustment of consumer price indices might be somewhat different

Current practices in the EU

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• EU statistical institutes: headline figure  year-on-year

rate of change, no seasonal adjustment of HICPs

• Seasonal adjustment of (non-harmonised) consumer

price indices: INSEE (France), Office for National Statistics (UK) and Deutsche Bundesbank (Germany), some other national central banks (in particular Banca d’Italia) for internal purposes  no particular role in the EU, different to the US and Canada

• Seasonally adjusted HICPs

for the euro area: ECB  published on the website, in the Monthly Bulletin …

ECB inflation analysis and forecasting

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Key breakdown: “main components”

• Unprocessed food (meat, fish, fruit and vegetables)
• Processed food (incl. alcohol and tobacco)
• Industrial goods (excl. energy)
• Services
• Energy

 Forecasted seasonal factors  Seasonally adjusted month-on-month rates of change  Base effects in year-on-year rates of change

Seasonality in HICP main components

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mainly present in

• HICPs

for unprocessed food, primarily due to seasonality in prices for fresh fruit and vegetables

• HICPs

for industrial goods, primarily due to sales prices for clothing and footwear

but also in

• HICPs

for services which may be also affected by calendar effects (dating of Easter) via its holiday-related price indices

while weak and/ or “erratic” seasonality is found in

• HICPs

for processed food (alcohol and tobacco!)

• HICP for energy

Seasonal adjustment of euro area HICP

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Current ECB practice

• Seasonal adjustment of HICP main components except

energy

• No seasonal adjustment of HICP for energy, since

identifiable seasonality is currently not present

• Seasonally adjusted total HICP obtained by aggregating

seasonally adjusted main component indices + unadjusted energy price index

• Normal HICP weights are used

Euro area HICP

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Month-on-month percentage changes

• 1.0
• 0.5

0.0 0.5 1.0 1.5 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 unadjusted seasonally adjusted

Task Force: members and mandate

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“Task Force on Seasonal Adjustment of National HICPs”

• Members:

eight EU national central banks, two statistical institutes + Eurostat as observer, chair and secretariat: ECB

• Mandate:
• Review and specification of existing guidelines
• Treatment of seasonal breaks
• Treatment of changes in VAT and excise duties
• Calendar effects, e.g. in price indices for package holidays
• Aggregation of seasonally adjusted component indices

Recommendations and guidelines

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Seasonal breaks

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Euro area HICP – industrial goods: index levels

94.0 95.0 96.0 97.0 98.0 99.0 100.0 1999 2000 2001 2002 unadjusted seasonally adjusted (whole series) seasonally adjusted (split factors Dec.2000/Jan.2001)

Taxes and excise duties

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Euro area HICP – Processed food excl. alcohol and tobacco: month-on-month percentage changes

• 0.5

0.0 0.5 1.0 1.5 2.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 unadjusted seasonally adjusted

Calendar effects

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Euro area HICP – Services: month-on-month percentage changes (Easter in March: 2002, 2005 and 2008)

• 1.0
• 0.5

0.0 0.5 1.0 1.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 unadjusted seasonally adjusted

Aggregation (1): Issue

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Which weights to use for aggregating seasonally adjusted component indices?

• HICP: chain-linked index, weights at prices of previous

year’s December

• Trend levels of seasonally adjusted HICP and

unadjusted HICP should not differ systematically

• Current approaches:

Bureau of Labor Statistics (USA), Office for National Statistics (UK) und ECB  Use of “normal” weights

• Aggr. (2): HICP index number concept

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• HCPI: Chain-linked Laspeyres-type (“Lowe”) index
• Link period: December
• Weights refer to a certain weight reference period,

expressed in December prices “Price-updating” of expenditure shares

• EU national statistical institutes conduct either annually

updating weights (quantities) or every five years (or so)

Aggregation (3): Example – components

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Example by J. Walschots (Eurostat): Unadjusted indices, Price-updating of weights to December prices

50 100 150 200 250 300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Component 1 Component 2 Component 3 Total

Aggregation (4): Example – first approach

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Example by J. Walschots (Eurostat): Seasonally adjusted indices, price-updating with unadjusted components

50 100 150 200 250 300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Component 1 Component 2 Component 3 Total

Aggregation (5): Example – second appr.

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Example by J. Walschots (Eurostat): Seasonally adjusted indices, price-updating with seasonally adj. components

50 100 150 200 250 300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Component 1 Component 2 Component 3 Total

Aggregation (6): Example – Trend level

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Annual average in the year 16

• Unadjusted total index:

160.1358

• Indirectly seasonally adjusted total index, price-

updating of expenditure shares with unadjusted component indices: 140.6291

• Indirectly seasonally adjusted total index, price-

updating of expenditure shares with seasonally adjusted component indices: 160.1358