Harmonised index of consumer prices - August 2020

• Belgium's inflation rate based on the European harmonised index of consumer prices (HICP) was running at -0.9 % in August compared to 1.7 % in July. Core inflation (inflation without energy and unprocessed food) stands at -0.1 % in August.
• The inflation rate based on the consumer price index (CPI) for August stood at 0.8 % compared to 0.7 % in July.
• The sharp decrease in inflation is due to the postponement of the summer sales from July to August. The sales are processed in the CPI according to another methodology. This is why the inflation is more stable in August^[1].
• The sub-indices with the largest upward effect on inflation were restaurants and cafés, housing rent, meat, the purchase of passenger vehicles, fruit and tobacco.
• However, the sub-indices with the largest downward effect on inflation this month were clothing, domestic heating oil, footwear, gas, motor fuels and electricity.
• The harmonised index of consumer prices of August for the EU Member States will be published by Eurostat on 17 September.

Inflation based on the European harmonised index of consumer prices (HICP)^[2] was running at -0.9 % in August, compared to 1.7 % in July. The inflation rate based on the harmonised index of consumer prices at constant tax rates (HICP-CT)^[3]was running at -0.5 % in August, compared to 2.1 % in July.

Inflation and effect on inflation for the 12 main groups

Based on the breakdown into 12 main groups, the highest inflation rate in August was measured for "food and non-alcoholic beverages" (3.2 %). The lowest inflation rate was measured for "clothing and footwear" (-21.1 %).

The main group with the largest upward effect on inflation in August was "food and non-alcoholic beverages" with an effect of 0.8 percentage point. The largest downward effect was measured for the group "clothing and footwear" (-1.3 percentage point).

Inflation^[4]and effect^[5] on inflation for the overall HICP and 12 main groups

Inflation according to specific aggregates

The overall HICP can be broken down into five specific aggregates which together form the total expenditure.

• Inflation for energy products increased again compared to the previous month. It was running at -10.6 % in August compared to -11.2 % in July and -13.1 % in June. Prices decreased on average by 0.1 % compared to the previous month. The average inflation rate of this aggregate for the last twelve months is -9.6 %.
• Inflation for processed food products increased compared to the previous month. It was running at 2.4 % in August compared to 1.9 % in July and 1.8 % in June.  Prices increased by 0.2 % on average compared to July.
• Inflation for unprocessed food (fruit, vegetables, meat and fish) has gone down. It was running at 5.4 % in August compared to 7.3 % in July and 6.3 % in June. Prices decreased on average by 1.6 % compared to July. The average inflation rate of this aggregate for the last twelve months is 2.6 %.
• Inflation for non-energy industrial goods was running at -4.6 % in August compared to 5.5 % in July and 0.9 % in June. Prices decreased on average by 5.3 % compared to July. The sharp decrease in inflation for this group is due to the sales postponement.
• Inflation for services (including rents) amounted to 1.7 % in August and July compared to 1.5 % in June. Prices decreased by 0.2 % on average compared to the previous month.

Core inflation (inflation without energy and unprocessed food) was running at -0.1 % in August, registering a decrease compared to the inflation rate of 2.9 % measured in July. Average core inflation over the last 12 months amounts to 1.5 %. Prices of this subaggregate decreased by 1.7 % compared to the previous month.

Inflation according to specific aggregates

Effect of sub-indices on inflation

The largest upward effect on inflation was caused by restaurants, cafés and similar services (0.29 percentage point). Housing rent provided an upward effect of 0.24 percentage point. Meat had an impact of 0.16 percentage point, the purchase of passenger vehicles an impact of 0.14 percentage point. Finally, fruit had an impact of 0.11 percentage point and tobacco an impact of 0.09 percentage point.

Sub-indices with the largest upward effect on inflation

The largest downward effect on inflation came from clothing (-1.04 percentage point). Domestic heating oil had an impact of -0.31 percentage point and footwear an impact of -0.25 percentage point. Gas and motor fuels had a downward effect of -0.23 and -0.22 percentage point respectively. Finally, electricity provided a downward effect of -0.17 percentage point.

Sub-indices with the largest downward effect on inflation

Comparison with neighbouring countries

Since the final HICP of the neighbouring countries will not be published until later, comparisons can only be made based on the first HICP flash estimate for August.

In August, inflation in Belgium was running at -0.9 %, down from the 1.7 % registered in July. The Netherlands registered an inflation rate of 0.3% in August; a decrease compared to an inflation rate of 1.6 % in July. Inflation in France in August amounted to 0.2 %, a decrease compared to 0.9 % in July. In August , inflation in Germany was running at -0.1%, slightly  down from a rate of 0.0% in July.

Since the HICP at constant tax rates for August are not yet published by Eurostat, July is the most recent month to use as a basis for comparison. Belgium's inflation rate based on the HICP-CT stood at 2.1 % in July, up from a rate of 0.2 % in June. Germany's inflation rate stood at 2.1 % in July, up from 0.8 % in June. In France, this inflation rate amounted to 0.7 % in July, up from a rate of 0.0 % in June. Inflation in the Netherlands in July amounted to 1.6 % and remained unchanged compared to June.

^[1]  In the HICP, sales are processed in the month where they take place, as for the HICP, inflation is more important than the index level. The sales postponement from July to August leads for the HICP to a strong upward movement in inflation in July and to a strong downward movement in inflation in August. For the CPI, on the other hand, the sales period effect is spread over the 12 months of the year in order not to cause strong index fluctuations. If they are not spread, they would cause a large imbalance with regard to the impact on the indexations, purely based on the month in which the indexation takes place. Therefore, the effect of the sales postponement in the CPI inflation is not noticeable.

^[2]In addition to the national consumer price index (CPI), Statbel also calculates a European harmonised consumer price index (Harmonised Index of Consumer Prices, HICP). The HICP is used to compare inflation rates in the EU Member States. To this end, the applied expenditure approach and methods have been coordinated as much as possible and laid down in European regulations. The results of the CPI and HICP are not the same. This is mainly due to a different weighting and composition of the basket of goods and services on which these indices are based.

The HICP is also used by the European Central Bank in its monetary policy. Additionally, the HICP is used to determine to what extent a Member State meets the inflation criteria set in the Treaty on European Union.

Differences between the HICP and the current CPI are:

• The weighting of the basket of goods and services in the HICP is mainly based on the national accounts. At lower detailed levels the Household Budget Survey is used. The CPI mostly uses the Household Budget Survey at all levels.
• The reference population of the HICP consists of private households (including tourists in Belgium) and institutional households (e.g. retirement homes and nursing homes). In the CPI, this population currently consists of private households with a reference person under a maximum age.
• The HICP uses the concept of domestic expenditure: expenditure in Belgium by the reference population. The CPI uses the concept of national expenditure: expenditure by the reference population irrespective of the location.
• Seasonal adjustment is not applied in the HICP, but is applied in the CPI to travels abroad and stays in holiday villages.
• Sales periods in the CPI are systematically spread over 6 months, but are included in the same month in the HICP.
• Current prices for domestic heating oil are used in the HICP calculation. A weighted 12-month average is applied in the CPI calculation.

^[3] The HICP-CT is calculated in the same way as the regular HICP, but the prices in this index are calculated based on constant tax rates. This index therefore reflects the theoretically potential effect of changes in indirect tax rates (such as VAT or excise duties) on measured inflation. However, this is a theoretical effect, since it presupposes that tax changes are immediately and entirely reflected in prices paid by consumers.

^[4] Inflation on annual basis measures the price changes between the current month and the same month of the year before. A 12-month average compares the average HICP of the last 12 months with the average of the previous 12 months. A monthly change compares the price levels of the last two months.

^[5]An effect on inflation shows the changes on the inflation rate by including this sub-index in the CPI calculation. The effect not only takes the weight of the sub-index into account, but it also takes into account whether the sub-index inflation is higher or lower than that of the total expenditure (overall HICP).