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The Fairy Tale of Low Inflation in the Euro Area

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  • Hochstein Martin

    (Allianz Global Investors GmbH Frankfurt, Global Economics and Strategy, Bockenheimer Landstraße 42, Frankfurt am Main, Germany)

Abstract

There are strong indications that actual consumer inflation in the euro area is understated by official price measures. The exclusion of homeowner shelter costs and inadequate quality adjustments for certain basket items are among the reasons for a potential downward bias in Eurostat's Harmonised Index of Consumer Prices, which would have widespread ramifications not only for consumers but also for the broader economy and financial markets. By focusing on the HICP as a yardstick for its primary objective of medium-term price stability, the European Central Bank relies on a too narrowly defined and error-prone inflation concept.

Suggested Citation

  • Hochstein Martin, 2018. "The Fairy Tale of Low Inflation in the Euro Area," The Economists' Voice, De Gruyter, vol. 15(1), pages 1-4, December.
    • Handle: RePEc:bpj:evoice:v:15:y:2018:i:1:p:4:n:6
    DOI: 10.1515/ev-2018-0025
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    References listed on IDEAS

    as
    1. Robert J. Gordon, 2000. "The Boskin Commission Report and its Aftermath," NBER Working Papers 7759, National Bureau of Economic Research, Inc.
    2. Mark A. Wynne & Diego Rodriguez‐Palenzuela, 2004. "Measurement Bias in the HICP: What do we know and What do we need to know?," Journal of Economic Surveys, Wiley Blackwell, vol. 18(1), pages 79-112, February.
    3. Rodolfo Arioli & Colm Bates & Heinz Dieden & Ioana Duca & Roberta Friz & Christian Gayer & Geoff Kenny & Aidan Meyler & Iskra Pavlova, 2016. "EU Consumers’ Quantitative Inflation Perceptions and Expectations: An Evaluation," European Economy - Discussion Papers 038, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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