Weekly Updates
Weekly Updates
- Politicians love to make international comparisons. But international comparisons of consumer price inflation are dangerous. The change in price of an apple in the US can be compared to the change in price of an apple in Germany easily enough. But inflation covers many price changes, and tries to serve as a proxy for all price changes.
- Different goods and services have different weights for different economies. This is understandable, as inflation is a proxy for a “typical” consumer’s spending basket. Food is more important for a consumer in lower-income economy like China than in a higher-income economy like Japan.
- Home ownership is the biggest problem for developed consumers’ price inflation, as the asset value of housing needs to be removed. Countries use wildly differing methods for housing costs. Other prices are adjusted for quality—making sure “inflation” is not capturing consumers getting more for their money. But countries do not agree on what items should be quality adjusted, or how adjustments should take place. Price discounts are sometimes included, and sometimes not.
- This means that consumer price inflation league tables or assumptions that inflation in one country will spread to another are not really much use. Inflation should be considered a very local affair.
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