Volatile inflation data reflect Germans’ love of package holidays
Germans’ love of package holidays risks causing difficulties for eurozone policymakers as they strive to understand how inflation is changing across the bloc.
A methodological change in how Germany’s statistics office accounts for the cost of its citizens’ holiday spending has thrown economists into confusion over the rate of change in prices.
At the start of this year the statistics office, known as Destatis, changed its inflation methodology to better reflect how spending on holidays is spread over the course of the year.
The previous method only used data on traditional winter and summer holiday trips, whereas the new calculation looks at package holiday costs over the entire year — as a more diverse range of travel options are available to holidaymakers.
Destatis has also expanded the types of trips sampled to cover visits to destinations which appeal to holidaymakers throughout the year, as well as traditional summer and winter locations.
The new methodology was introduced “to better reflect the seasonality of package holiday prices”, said Anders Svendsen, chief analyst at Nordea.
But that means incorporating wild swings in prices: in June German package holiday prices rose by 6.1 per cent year on year, according to the new methodology, after contracting by 9 per cent in May.
“The new seasonal factors have increased the swings in reported prices for package holidays,” said Frederik Ducrozet, a strategist at Pictet Wealth Management.
The change has made German inflation data more volatile. When Germany reported an increase in inflation in June — to 1.6 per cent, from a monthly rate of 1.4 per cent the previous month — the country’s statistics office reported that it “was caused in particular by package holiday prices rising again”.
“The methodological changes for package holidays introduced more volatility,” a spokeswoman for Destatis said in a statement. “We are convinced that the volatility shown reflects the actual price development of package holidays for Germany.”
As Germany is the eurozone’s largest economy, this feeds through into calculations for the bloc as a whole.
In December last year — the last month for which the comparison of the two methodologies is available — German package holiday inflation contracted by 1 per cent under the new methodology, but it would have risen by 2.6 per cent under the old calculation, according to Eurostat.
Overall eurozone inflation was recorded as 1.5 per cent; it would have been 1.6 per cent using the old calculation.
The consequence, some economists say, is to make life a little harder for rate-setters at the European Central Bank. The ECB’s mission is to stimulate the economy if rates persistently run at below 2 per cent — but for that, it needs inflation data that contains as little noise as possible.
“[Destatis] broke not only the German headline and core CPI but also the historical eurozone HICP and introduced new perturbations to the index thanks to [its] changes,” said Hadrien Camatte, a macroeconomist at think-tank BSI Economics. “Monetary policymakers can tell [Destatis], ‘thank you’.”
Experts warn that, with added volatility in the headline inflation figure, the ECB is likely to pay more attention to measures of underlying inflation.
The volatility “has strengthened the case for the ECB to look through the noise, focusing on a broader range of indicators of underlying inflation”, said Mr Ducrozet.