Comparison of harmonised baskets in the euro area
Inflation measurement in the EU is based on the harmonised consumer basket
of Eurostat, which hence also serves as a guide for ECB policy. Whilst the
differences between the harmonised and the national basket are minor, the
harmonised basket does not capture imputed rents for owner-occupied
housing.
Accordingly, the weight of rents is halved to 10% and overall
expenditure on housing comes to only 20% (compared with 21% and 32%,
respectively, in the national index). Relative to the other euro countries,
Germany is assigned the highest weight in the respective harmonised national
basket, which is interesting to note. For the euro area as a whole, weights are
only 6% for rents and 15% for overall housing expenditure. From our
perspective, it might be helpful if consideration were given to including imputed
rents for owner-occupied housing in the harmonised basket.
Going by the
economic performance, mortgage debt and, correspondingly, ownership rates in
Germany are low in the international comparison. As the harmonised consumer
basket does not capture mortgage interest and redemption payments, countries
with significantly higher mortgage debts and ownership rates arguably spend
much more on housing than the harmonised basket implies. This argument is
further supported by housing expenditure relative to disposable household
income.3 OECD data underline two key facts for the euro area.
Firstly, German
housing expenditure relative to disposable income is close to the euro area
average. Secondly, there is no correlation between housing expenditure as a
percentage of disposable income and weights in the harmonised consumer
basket (correlation 0.05). If actual expenditure on housing is underestimated in
the harmonised consumer basket, it can reasonably be assumed that the effect
of rents on inflation was understated, particularly during housing booms, which
means that monetary policy was too accommodative.
If imputed rents for owner-
occupied property are included, current harmonised inflation should also be
somewhat higher, at least in some euro countries.
EU Forecast
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