Reported inflation versus inflation reality

Posted by: Paul Donovan

02 Mar 2021

Daily update

  • The flash estimate for Euro area February consumer price inflation is due. As with yesterday’s German data, there is a positive bias to Euro area consumer prices as the official data catches up with reality. Euro area inflation was underreported in 2020, because Eurostat assumed people were spending like they did in 2019. This was not true. Now Eurostat assumes people are spending like they did in 2020, which will (temporarily) bring reported inflation in line with reality.
  • Do consumers care? No. Normal people do not obsess about reported consumer prices the way economists do. Consumers have been living the reality of a higher consumer price inflation rate for many months. The fact that Eurostat is temporarily joining the real world is unlikely to change behavior.
  • German retail sales were at the bottom end of a huge forecast range (+4% to –6% m/m) for January as restrictions limited spending. This is German data, and so—do join in if you know how this goes—the past month’s data was revised higher.
  • US Federal Reserve Governor Brainard (a leading economic voice at the Fed) is speaking again today, with more of a macroeconomic focus. Yesterday’s Fed speak was generally dismissive of recent bond market volatility.

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