Archive:The "flash" in the limelight
This Statistics Explained article is outdated and has been archived - for recent articles on consumer prices see here.
- Published in Sigma - The Bulletin of European Statistics, 2007/02
Eurostat wrote a little piece of history with the launch of the flash estimate of the harmonised indices for consumer prices (HICP) in November 2001, just before the changeover to the euro in 2002. Today, the flash estimate is issued on the last working day of the month, two weeks before the full HICP, and it is praised for its quality, accuracy and timeliness.
Introduction
The flash HICP gives an early estimate of the development of annual inflation in the euro area. In most months it is based on early data from nine euro-area countries, which represent 95 % of the euro-area total expenditure weight. The econometric model which is used to calculate the flash also includes data on energy prices and takes into account historical data and seasonal trends.
Statistical handicraft
However, the work to produce a flash figure is not completely automatic. There is a fair share of statistical handicraft done by the flash team — Christine Wirtz, Colin Stewart and Angèle Costanzi, who work in Eurostat’s Price Statistics Unit.
‘We put together several figures from national data sources and information on energy prices. This information is used by our estimation programmes, but it also needs to be analysed from an expert point of view’, says Ms Costanzi. The flash estimate has a record of being very accurate. Over the last two years, the team has predicted the inflation rate on the decimal 16 times and eight times with a difference of 0.1.
January is the most difficult month, not only because there is less time due to the Christmas holidays, but also because the weights of the sectors are updated every year in January. If there is a change in the data collection, an example being the changed VAT rate in Germany in 2007, it also has to be introduced in the January figures. As a result, there can be bigger revisions than usual in the Members States’ figures, which results in a risk for larger inaccuracy between the flash and the real HICP.
The flash estimate is normally issued on the last working day of the month according to a calendar issued in the December of the previous year. The flash team has never missed a scheduled date.
No details ... yet
The flash gives a single figure for inflation in the euro area. Details for countries and price developments in sectors such as food, housing and transport are released two weeks later in the normal HICP release.
‘One of our objectives in the medium to long term is to release forecasts at a more detailed level, for example for “all items excluding energy”. However, we do not plan to issue monthly inflation estimates’, says Ms Wirtz.
‘The present level of accuracy achievable for flash estimates makes monthly inflation rate estimates almost impossible. If the actual monthly rate of inflation turned out to be, say, 0.1 %, a flash estimate of 0.2 % would simply not be good enough. Hence, we have to stick to annual figures’, says Mr Stewart.
Interest in Europe and beyond
The flash is used by the European Central Bank for monetary policy decisions, but it is also important for other central banks and financial analysts, not only in Europe.
‘As the inflation rate influences the ECB’s decisions about euro-area interest rates and, thereby, the financial markets and capital flows, it is obviously watched closely by the Americans and other countries as well’, says Mr Stewart. In fact, Eurostat’s flash HICP estimate is among the top three most used indicators by financial analysts according to Goldman & Sachs, a leading global investment banking and management firm.
