Wednesday, February 24, 2021

Two views of Irish prices

Everyone loves a comparison.  Figures from the CSO today have been reported with the headline:

Prices in Republic 35% above EU average, CSO figures show

The cost of basic products and services in the Republic was 35.4 per cent higher than the EU average in 2019, and the second highest after Denmark, a new report by the Central Statistics Office (CSO) shows.


The CSO’s report shows that price levels here were 25.9 per cent above the EU average back in 2009. This dipped to 21.1 per cent above the EU average in 2011 as the economy entered into a recessionary period, before increasing again in recent years (to 35.4 per cent in 2019).

And here is a chart illustrating these figures.

PPP Price Levels Ireland EU27 2009-2019

The price level for the EU27 as a whole is set equal to 100 for each year with the Irish price level in 2019 estimated to be 35.4 per cent higher than this.  Denmark is also shown.   In 2019, Ireland had the second-highest price level for household final consumption expenditure in the EU, after Denmark.

So, this is one view of Irish prices.  In the last ten years Ireland’s price level has risen faster than the price level of the EU27 as a whole moving from being 20 per cent higher in 2010 to 35 per cent higher in 2019.  Irish prices started off higher and became even higher again.  Relative to EU’s highest price level, we can see that the Irish price level was significantly below the Danish price level in 2010 but has converged on the Danish level over the past decade.

Here’s a second view.  This is from the harmonised index of consumer prices (HICP).  This is what is used to measure inflation across the EU.  It does not give relative price levels across countries but gives an estimate of relative price changes within a country (i.e. the inflation rate).

HICP Ireland EU27 2009-2020

The indices for Ireland, Denmark and the EU27 are set equal to 100 for 2009 and the relative prices changes that occurred within each are shown by the changes from this point.  And it can be clearly seen that HICP inflation in Ireland has been much lower than for either Denmark or the EU27.

Since 2009, Danish consumer prices are up almost 12 per cent while for the EU27 as a whole there is an estimated price rise of over 15 per cent.  On the other hand, Irish prices in the HICP are up less than four per cent on 2009.

So there you have it.  Two different views.  The price level indices for household final consumption expenditure show that the Irish price level has risen by about 10 percentage points relative to both the price levels of Denmark and the EU27 (when the EU27 is set equal to 100).  On the other hand, the harmonised index for consumer prices shows that inflation in Ireland since 2009 has been eight percentage points lower than in Denmark and 11 points lower than the inflation for the EU27.

This is not to suggest that there is something wrong with either of these views of Irish prices.  The price level for household final consumption expenditure and the harmomised index of consumer prices are different things.  And as the Irish Times point out a lot of the action is linked to housing:

“The CSO’s Measuring Ireland’s Progress 2019 study suggests the primary reason for the higher cost of living here is housing.”

If you want to take, a very deep, trip into the weeds to see how housing can explain some of the divergence between the charts above see here.

No comments:

Post a Comment