After being subdued for a number of years, euro area inflation has recently increased markedly. This raises two main questions. What are the drivers of this development?Read more
Source: Statistics Netherlands
Higher inflation rate for estimated items
The inflation rate for items with estimated prices has been significantly higher in recent months than that for items whose prices could be measured. For example, in April and May, estimated prices were about 3% higher than a year earlier, while measured prices had risen by less than 1% (Figure 1). In June, July and August the differences were even greater, but the contribution to headline inflation was small because the number of estimated items had dropped sharply (Figure 2). In July and August only the prices for cultural services such as theatres, concerts and festivals were still lacking. As of July, the prices for other goods and services could be observed again. The fact that this did not result in lower inflation in July demonstrates that the estimated prices did not vary significantly from observed prices, despite the high inflation rate for these items. In statistical terms, the high inflation rate for items with estimated prices is due to price levels in March 2020 and price developments in 2019, since that is how these prices were estimated. Consequently, they show a structurally different pattern. The price increases in categories where prices could not be observed, i.e. recreation, cultural services and airline tickets, have been around 1.5 percentage points higher than general inflation rates in recent years. The differences shown in Figure 1 reflect this trend.
Chart 2 - Sharp drop in contribution to inflation of estimated items