ECB: Impact on HICP of Owner-Occupied Housing Not Great; Maximum 0.3 Point Since 2011

16 February 2022

By David Barwick – FRANKFURT (Econostream) – The impact of including owner-occupied housing (OOH) in Eurozone harmonised inflation has never been greater than 0.3 point in the last decade, the European Central Bank said on Wednesday.

In a pre-release from the first economic bulletin of 2022, due out Thursday, the ECB considered the treatment of OOH in inflation indices against the backdrop of last year’s recognition by the Governing Council that incorporating OOH yields measures of inflation more reflective of what households actually experience.

The Council recommended including OOH on the basis of a net acquisition approach, under which OOH sales to buyers outside the household sector are subtracted from aggregated OOH purchases by the household sector. This approach would mean a weight of OOH in euro area HICP of around 9%, the ECB said.

‘Over the last ten years, based on our preliminary staff calculations, the euro area HICP combined with the OOHPI [quarterly HICP that includes OOH] has exhibited inflation rates that do not differ greatly from those of the HICP without OOH-related costs’, it said. ‘Since 2011, the difference between the euro area HICP with and without OOH has been limited, with the largest difference being 0.3 percentage points.’

The ECB said that a few countries had been behind most of the overall difference since 2012 between euro area HICP inflation and changes in the HICP combined with the OOHPI. Spain was the main source of differences in 2012 and 2013, it said.

‘Since then, the drivers of the difference in euro area inflation when the OOHPI is added to the HICP have been more evenly spread across euro area countries’, the ECB said. ‘However, developments in the last few quarters are mostly explained by the sharp increase in Germany.’

The incorporation of OOH in core measures of inflation results in larger differences due to OOH’s higher relative weight, the ECB said. Excluding food and energy, ‘[t]he largest difference was around 0.4-0.6 percentage points in the second and third quarter of 2021 when HICP inflation (excluding OOH) was still influenced by coronavirus (COVID-19) pandemic-related factors’, the ECB said

‘From 2012 to 2020, however, differences did not exceed 0.3 percentage points in absolute terms, including when the inclusion of OOHPI changes lowered the rates of change of the combined index’, it said.