The difference between Ireland’s consumer price index (CPI) and Eurostat’s harmonized index of consumer prices (HICP) is more than just a percentage point. In July, Ireland’s CPI showed inflation at 5.8%, while Eurostat’s HICP reported 4.6% inflation. The discrepancy arises because the CPI includes mortgage interest payments, whereas Eurostat does not.
As interest rates continue to rise, the gap between the EU and Irish inflation measures is widening. This raises the question of whether these statistics are simply misleading. Economist Austin Hughes explains that these indices provide a general overview of the cost of living, but they do not capture everyone’s individual circumstances accurately.
The argument for excluding housing from the HICP is that it is considered an investment rather than a pure consumption good. The ownership of property can be seen as an asset. Both the CPI and HICP have their strengths and weaknesses, but for mortgage holders, interest rates significantly impact their cost of living. Therefore, many Irish people believe that the domestic CPI represents their cost of living more accurately.
It is important to note that the Irish CPI does not influence the European Central Bank’s (ECB) interest rate decisions. Given the relatively small size of the Irish economy compared to countries like France or Germany, Ireland’s HICP numbers have limited influence. The ECB will continue to raise interest rates as long as average eurozone inflation remains above their 2% target.
The widening gap between the two inflation measures is indicative of the high cost of housing in Ireland. Irish inflation experienced an earlier and more rapid increase compared to the rest of Europe, and it has been slower to decline. Belgium, Luxembourg, and Spain, countries with high inflation rates, saw price hikes of around 2% in July, in line with the ECB’s target.
Housing and energy have been the driving forces behind Ireland’s price increases, with inflation exceeding 5% in late 2021 and peaking at 9.6% in July 2022. The Credit Union consumer sentiment index for last month revealed that mortgage and rent costs ranked second, after energy, as drivers of inflation, indicating that people perceive the ECB’s policies as negatively impacting their standard of living.
ECB chief economist Philip Lane believes that households and businesses in the eurozone have enough savings to withstand the rate hikes. He expects that higher interest rates will lead to a reduction in demand but not to a severe economic downturn.
In conclusion, the difference between Ireland’s CPI and Eurostat’s HICP highlights the impact of housing costs on inflation. While the CPI includes mortgage interest payments, the HICP does not. The gap between these measures underscores the high cost of housing in Ireland and its effect on people’s cost of living. However, the Irish CPI does not directly influence the ECB’s interest rate decisions, and the central bank expects households and businesses to withstand the rate hikes.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
