Irish Times on inflation - WTF?

Time Magazine

I expect better from our nation's finest. Link

Inflation remains steady at 2.6%
The annual rate of inflation in March declined 2.6 per cent with no change on the previous month, according to data released by the Central Statistics Office (CSO) this morning.

Prices showed no change between February and March compared to an increase of 0.9 per cent in March 2008.

This brought the annual rate of inflation to -2.6 per cent compared with -1.7 per cent in February. The rate of consumer price inflation turned negative in January. The last time inflation was -2.6 per cent was in the third quarter of 1933.

The reductions means prices have returned to August 2007 levels.

In his Budget speech on Tuesday the Minister for Finance Brian Lenihan said the Government was expecting inflation to average at -4 per cent this year and that this decline would help offset the impact of the tax increases.

Falling mortgage bills as a result of the fifth in a series of six interest rate cuts by the European Central Bank rates in March has been one of the most significant contributors to easing of consumer prices.

Last month mortgage repayment costs declined 3.2 per cent to bring the annual fall to 29.1 per cent.

Rental accommodation costs increased marginally last month, rising by 0.4 per cent but remain 13.8 per cent lower than in March 2008.

While much of the deflation rate can be attributed to the ECB interest rate cuts other sectors of the economy are still recording rising prices.

Over the year alcohol prices have risen almost 6 per cent, health prices are 4.7 per cent higher while education prices gained 5.5 per cent.

A basket of miscellaneous goods, including car insurance, home insurance and toiletries has risen 9.1 per cent over the last year.

The small and medium enterprises' representative body Isme said falling costs need to be passed on to businesses.

Jim Curran. Isme head of research said small businesses “have yet to witness any benefit from the reduction in inflation due to the high level of business costs.”

“This is completely unacceptable as many of the costs militating against business are state controlled, including local charges and energy. If anything, the Minister scored an ‘own goal’ in the recent budget, exacerbating the problem, with ludicrous increases in diesel and the insurance levy”.

"The annual rate of inflation in March declined 2.6 per cent with no change on the previous month." How could the annual rate of inflation decline while simultaneously not change? I presume the author means the annualised price level declined but inflation remained constant. That's different. dP/dT ≠ d2P/dT2.

TheBazman

The month on month change was 0 but the year on year change was -2.6% - the y0y can change due to base effects dropping out etc

johnnyskeleton

They should have said the annual rate of inflation declined to -2.6%.

Time Magazine

johnnyskeleton wrote: »

They should have said the annual rate of inflation declined to -2.6%.

I don't even think that's right because inflation stayed constant at -2.6%, as far as my reading of it goes.

Économiste Monétaire

It's the % change between two points on an index. 106.5 (March '08) and 103.7 (March '09 and 103.7 in February).

mike65

Its the annual rate of deflation no?

johnnyskeleton

The Economist wrote: »

I don't even think that's right because inflation stayed constant at -2.6%, as far as my reading of it goes.

The YoY figure declined from -1.7% in Feb to -2.6% in March. Does that work?

To be honest, I've lost a lot of faith in the stats anyway. Most of the deflation seems to come from reductions in mortgage interest and reduced petrol prices (which are on the way back up, but this time it has nothing to do with the high price of oil).

Other than that, prices on the ground seem to have gone up since last march. Buses are more expensive, pints are more expensive, there are good deals on food in some supermarkets but headline food prices are the same if not slightly more. I haven't done my bi-annual clothes shop, but I would imagine clothes have not decreased as much as the stats would indicate. And the fact that March shows a rise in the price of clothes?

Économiste Monétaire

I'm not sure if people are confused as to where the -2.6% figure comes from, I thought I understood the original point (about changes between time and rates/magnitudes of change over time) but I'm slightly lost again, so I'll type it out anyway. It's just taking two points in time and getting the percentage change.

Index for March 2009 = 103.7; Index for March 2008 = 106.5. The base being December 2006. Annual change for the index = [(103.7 - 106.5)/106.5] x 100 = (-2.8/106.5) x 100 = -0.026291 x 100 = -2.6%

February '09's figure was the same as last month, so: [(103.7 - 105.5)/105.5] x 100 = -1.7%. The reason that "inflation remained constant," was because it remained the same on a month-to-month basis. I think the Economist is asking if they take the average inflation over all months...

It's better to use HICP figures.

Time Magazine

Maybe they're listening, they've changed the phrasing:

Consumer prices fell 2.6 per cent in the year to March to reach levels last seen in the 1930s, according to data released by the Central Statistics Office (CSO) this morning.

That's much more understandable!

Time Magazine

Hang on.

"Consumer prices fell 2.6 per cent in the year to March to reach levels last seen in the 1930s, according to data released by the Central Statistics Office (CSO) this morning."

Consumer prices haven't been this low since the 1930s? Nonsense!!

Économiste Monétaire

Basic English: no longer a prerequisite to work for the IT.

johnnyskeleton

Économiste Monétaire wrote: »

Basic English: no longer a prerequisite to work for the IT.

Accountability and impartiality also seem to be out the window.

Steve.Pseudonym

Actually this is something I've notice quite often with Irish time stories, and I find it very annoying. It seems that when any economic data at all comes up they don't know what it means or how to present it. Their business editor doesn't appear to do a terribly good job.

Thraktor

Économiste Monétaire wrote: »

Basic English: no longer a prerequisite to work for the IT.

I think the lack of maths is the greater problem. Even the FT can't get it right when talking about inflation. Here's something I posted somewhere else a while ago about an FT article on inflation:

http://www.ft.com/cms/s/0/fcbf4122-b555-11dd-ab71-0000779fd18c.html

Am I the only person who finds this article deeply confusing? The headline implies that inflation is decreasing, ie the second derivative of consumer prices is negative. The first line, then, states that "Consumer prices tumbled in October", which would mean that the first derivative of consumer prices is negative (a more important piece of information which hence should probably have been in the headline).

The second paragraph, however, only adds to the confusion:
"The official measure of consumer prices dropped 0.7 per cent last month to a much lower-than-expected annualised rate of 4.5 per cent, after peaking at 5.2 per cent in September."
This would imply that the second derivative of prices is negative (to the tune of -0.7% a month), but that the first derivative is still positive (at +4.5% per year). The difficulty here, though, is that they're no longer talking of the first and second derivatives, but of the sum over 12 months of the first derivative (the 'annualised rate') and then the derivative of that sum, which in fact has as much to do with the second derivative of prices a year ago as it does with the second derivative of prices today.

The third paragraph, then, directly contradicts the first:
"prices are still rising faster than the Bank of England’s 2.0 per cent medium-term target"
which means that the first derivative of consumer prices is actually positive.

Further confusion arises later on in the article, where it's stated that "The Retail Price Index ... rose by 4.2 per cent in October, down from the 5.0 per cent rate in September." For the RPI to 'rise by 4.2%' in a single month, this would imply a compound annualised rate of 64%, which clearly isn't the case. What they mean to say is that the annualised rate in October (the sum for the 12 months up to and including October of the first derivative of the RPI) is 4.2%, which is a different thing entirely.

My simple and effective solution that I would suggest to the Financial Times to eliminate this opacity is to start using mathematical formulae in their headlines and articles. This would offer an unambiguous (and much more succinct) explanation of events to those of us who are confused by their attempted linguification of mathematical concepts, while forcing everyone else to actually make an attempt to understand the mathematics behind the financial news they're reading from day to day.

snubbleste

Consumer prices continue to fall, with the annual rate of deflation reaching 3.5 per cent in April, new figures from the Central Statistics Office showed today.

The most significant decreases were seen in housing, water, electricity, gas and other fuels, which fell 19.1 per cent throughout the year as mortgage payments declined as a result of lower interest rates. Clothing and footwear declined 11.9 per cent, while transport saw prices fall 4.8 per cent.
Alcohol and tobacco rose 8 per cent as increased excise duties pushed prices up during the year. Education prices increased 5.3 per cent and health charges rose 4.5 per cent. Excluding tobacco, the CPI for April fell by 0.9 per cent in the month and was 3.9 per cent lower in the year. When energy costs were taken out of the index, it fell 1.1 per cent in the month and decreased by 3.4 per cent in the year.

Hmm RTÉ is referring to the news as negative inflation..

Économiste Monétaire

Mortgage interest contributes -3.2 of the -3.5 CPI figure. Core HICP inflation is about 0 or slightly positive Y-on-Y. Insurance took a sharp jump at nearly 20% Y-on-Y.

eamonnm79

"Alcohol and tobacco rose 8 per cent as increased excise duties pushed prices up during the year."

Does that mean alcohol rose 8% and Tobacco rose 8% or does it mean combined?
Its just I dont remember alcohol going up in the Budget.

Économiste Monétaire

Alcohol[ic Beverages] and Tobacco make up a COICOP grouping, so when they say, "alcohol and tobacco rose by 8%," they mean the overall group went up by 8%. Alcoholic beverages (alone) have a +2.9% Y-on-Y figure and Tobacco +12.3%.

eamonnm79

Économiste Monétaire wrote: »

Alcohol[ic Beverages] and Tobacco make up a COICOP grouping, so when they say, "alcohol and tobacco rose by 8%," they mean the overall group went up by 8%. Alcoholic beverages (alone) have a +2.9% Y-on-Y figure and Tobacco +12.3%.

Thanks for that, I am genuinely surprised at Alcohol going up.
There are lots more pubs and clubs doing cheeper drinks in Dublin in the last few months.
I can see why so many people are crossing into Newry.

Économiste Monétaire

eamonnm79 wrote: »

Thanks for that, I am genuinely surprised at Alcohol going up.
There are lots more pubs and clubs doing cheeper drinks in Dublin in the last few months.
I can see why so many people are crossing into Newry.

Just if you're interested:



COICOP/HICP Group 02 = Alcoholic Beverages and Tobacco

eamonnm79

Thraktor wrote: »

I think the lack of maths is the greater problem. Even the FT can't get it right when talking about inflation.

I am a lot more cynical.
If bankers and accountants and cook figures then why not the media.
Being deliberitely misleading about terrible figures would leave people feeling confused rather than angry.

Thraktor

eamonnm79 wrote: »

Thanks for that, I am genuinely surprised at Alcohol going up.
There are lots more pubs and clubs doing cheeper drinks in Dublin in the last few months.
I can see why so many people are crossing into Newry.

Those numbers are for off-license/supermarket sales of alcoholic drinks, pub sales are categorised under group 11 of the COICOP - 'Restaurants and hotels'. I'm guessing the increase in prices is partly due to the greater restrictions on supermarket sales that have been introduced over the past year, which would reduce competition.

Économiste Monétaire

The beer and wine numbers under group 11 are slightly lower than group 02 (except spirits). I referred to group 02 because of the Newry comment.



On the previous comment about CPI and CPI ex. mortgage interest:


I wonder which figures the government will use for a social welfare reduction proposal* :pac:

*Not a comment indicating for or against such an idea. No angry PMs please.

silverharp

Anybody on fixed incomes or benefits should be keeping very quiet or demanding a 5% increase in but in the common good will forgo any increases this year. lol

(note the chart below is quarter over quarter change annualized)

Économiste Monétaire

May CPI numbers are out. If anyone is interested, the headline annual CPI number is -4.7%, annual HICP is -1.7%.





The COICOP/HICP groups are:
01 Food and Non-Alcoholic Beverages;
02 Alcoholic Beverages and Tobacco;
03 Clothing and Footwear;
04 Housing, Water, Electricity, Gas and Other Fuels;
05 Furnishings, Household Equipment and Routine Household Maintenance;
06 Health;
07 Transport;
08 Communications;
09 Recreation and Culture;
10 Education;
11 Restaurants and Hotels; and
12 Miscellaneous Goods and Services.

Ronando

-5% year on year is some stat alright. It'd led to a discussion of deflation and housing costs led by Karl Whelan on the irisheconomy blog.
http://www.irisheconomy.ie/index.php/2009/06/11/deflation-and-housing-costs/

Overall point is that, due to the finance/asset aspect of buying a house, perhaps it's better to use rents rather than mortgage interest to measure housing costs, but - coincidentally (or not) - that makes very little difference in Ireland's case at the moment, given that rents are falling so fast these days.

Économiste Monétaire

For people interested in the relation betweenship owner-occupied housing costs and the CPI, there's a paper worth reading from Colm McCarthy.

http://irserver.ucd.ie/dspace/bitstream/10197/42/1/mccarthyc_workpap_001.pdf

Économiste Monétaire

June figures: -5.4% on the headline annual CPI, -2.2% on annual HICP, -1.6% on annual CPIX.

Économiste Monétaire

Let's look at some of the media coverage, neither RTÉ nor the IT appear to understand the difference between CPIX and the HICP.

RT&#201 wrote:

June prices fell at 5.4% annual rate

Thursday, 9 July 2009 11:21
The latest figures from the Central Statistics Office show that the pace of falls in consumer prices quickened in June.
Prices fell at an annual rate of 5.4%, compared with a 4.7% annual drop in May. In recent months, prices have been falling at rates not seen since the early 1930s.
Compared with May, prices dropped by 0.3%. Summer sales meant clothing and footwear prices dropped by 2.6% in the month, while mortgage repayments fell again as more ECB interest rate cuts were passed on to home owners. Food prices were also lower, but transport costs rose 1.5% as petrol and diesel prices increased.
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A breakdown showed that prices of goods dropped by 5% in the year to June, while services showed a fall of 5.6%.
Clothing and footwear prices have fallen by more than 12% over the year, while housing, water, electricity, gas and other fuels - the category which includes mortgage repayments - are down 25.6%.
The EU harmonised index - which excludes mortgage repayments - showed an annual fall of 2.2%, as prices were unchanged from May.

Irish Times wrote:

Inflation rate falls 5.4% in June


DAVID LABANYI
The annual rate of inflation fell by 5.4 per cent in June, according to data from the Central Statistics Office (CSO).
Prices have been falling since January and the cost of living, as measured by the consumer price index (CPI), declined by a further 0.3 per cent last month. This compares with a 4.7 per cent annual drop in May.
The monthly EU Harmonised Index of Consumer Prices, which strips out the impact of mortgage rates, was flat last month, but is now down 2.2 per cent compared to June 2008.
The most significant declines over the year was a 25.6 per cent fall in housing costs and a 12.2 per cent reduction in clothing prices.
Services prices fell 5.6 per cent in the year to June while electricity, gas and other fuels were 1.6 per cent lower.

Is the IT saying that May HICP was 0%?

Indo wrote:

Average prices down 5.4% in 12 months to June

Average prices in Ireland have fallen further over the past month, according to the latest inflation figures from the CSO.
The statistics agency says average prices fell 0.3% in June, mainly due to a decrease in average mortgage payments, lower food prices and the start of summer sales for clothing and footwear.
Over the past 12 months, average prices have come down by 5.4%, with falling mortgage payments accounting for much of the decline.
The annual decline last month compares to a 4.7% fall in May and 3.5% in April.

eamonnm79

I think they are saying May 2009 HICP v May 2008 HICP was 0 difference %

If mortgage reductions accounted for all of the 5.4% I guess this could make sense?

Économiste Monétaire

eamonnm79 wrote: »

I think they are saying May 2009 HICP v May 2008 HICP was 0 difference %

If mortgage reductions accounted for all of the 5.4% I guess this could make sense?

Just looking at the numbers again, I think they're referring to the monthly change in the index (between May and June '09) being 0.

eamonnm79

According to RTE news last night Mortgages were down 25% :eek:and made up the Lions share of the 5.4% drop.

Économiste Monétaire

Mortgage interest payments were down 46% y-o-y. Group 04 in the CPI was down 25.6% (Housing, Water, Electricity, Gas and Other Fuels). Mortgage interest's contribution to the annual figure of -5.4% was -3.89 percentage points (see table 4 in the main CPI release).

Time Magazine

Goin back to the original topic, I read with amazement in the Herald AM today that:

The Government was last night accused of failing to force consumer price cuts amid some of lowest inflation rates on record. The opposition joined business leaders demanding the Government use the falling cost of living -- down to 1933 levels -- to drive competitiveness.

The cost of living is down to 1933 levels lads :pac: 2 shillings for a pint!