Saturday, 12 August 2017

Greece's Consumer Price Index components analysis for 2010 - 2017

For quite some time now I wanted to take a look at Greece's Consumer Price Index in order to gauge each of its components' contribution to the headline figure. I somehow though never got round to it. Now, during a viciously hot August in Athens that makes sleeping at nights "a tad" harder, I finally managed to sit down and do it.

I used the 12 sub-indices that ELSTAT publishes along with their respective weights to translate their monthly, year-on-year, changes into their contributions to the headline figure. If those are used to re-construct the overall index, this is how the constructed index compares to the actual one. Good enough, I think. 

source: ELSTAT, own calculations

Since 2014 ELSTAT is supposed to revise the sub-indices' weights every year according to the Household Budget Survey, something that undoubtely improves the National CPI's quality and representativeness. That said, I haven't managed to find any revised weights for 2017... *sigh*

So, here's the relevant chart. 

source: ELSTAT, own calculations
As it is plain to see, the drivers of the 2010-2011 inflation spike were none other than the sub-indices covering the sectors for which indirect taxes were hiked (i.e. housing, transportation, food, alcoholic beverages and tobacco) while the rebound in crude prices in 2010 and the first half of 2011 also played a role.

Also interesting, that the main drivers of the second leg of the infamous Greek deflation were the sub-indices that where affected by the fall in crude's prices (i.e. housing due to heating oil and transportation). On the contrary, its first leg was significantly more broad-based but, as mentioned in an older post, since the turning of headline inflation to negative territory was preceded by an analogous move of the import price index, the catalyst also seems to be not domestic.

The signing of the 3rd Greek MoU in July 2015, which foresaw a hike in VAT for food items and the tourism sector, translated into inflationary pressures stemming almost exclusively from these two areas.

Finally, the move from deflation to inflation in early 2017 was driven from those sub-indices that were affected by the positive year-on-year change in crude prices, i.e. housing and transportation, while the tourism sector also contributed.

To wrap this up, it seems that some of the policies pursued due to the Greek MoU were not deflationary at all. On the contrary, they proved to be rather inflationary since their result was the highest inflation reading for Greece post-2000, in 2010. On the other hand, the notorious Greek deflation was mostly due to import prices falling, while the catalyst behind Greece's swing to positive inflation in 2017 was also a change in import prices, this time a surge.

P.S. In case someone's interested, here's the evolution of CPI sub-indices' individual weights. The increased importance for food items and housing will probably work towards making Greek CPI more volatile.

source: ELSTAT