In Japan, Switzerland and Germany housing-to-rent ratios are below their long-run average. But even for America, one version of The Economist’s fair-value measure suggests that the correction in house prices may have gone far enough. Prices measured using the Case-Shiller national index have fallen enough to make houses there look underpriced. In the big American cities covered by the Case-Shiller ten-city index, the price-to-rent ratio is nearing its historic average. Houses in America are still overvalued by around 13% if prices are measured using the index maintained by the Federal Housing Finance Agency, but this excludes properties financed using subprime mortgages, many of which have been sold at very low prices, and so may understate the extent to which prices have been plummeting.
The story is different in Britain. British house prices had risen by nearly 10% in the year to the end of the first quarter of 2010, but the country’s price-to-rent ratio still outstrips its long-term average by nearly a third. This pattern – of prices rising in markets where houses still look overvalued – is also seen in Hong Kong, Singapore, Australia, Sweden and Canada. In France, Italy, Spain and Ireland, houses do appear overpriced relative to their earnings potential, but at least prices there are still falling.
Table 13.7 Consumer spending deflators
Consumer or private expenditure deflators
Measures: Price changes affecting total consumers’ expenditure.
Significance: A broad indicator of consumer price inflation which is less susceptible to fiddling than consumer price indices.
Presented as: Quarterly and annual index numbers.
Focus on: Percentage changes.
Yardstick: OECD average consumer expenditure deflators rose by 4.6% a year during the period 1990–2008, declining from 6.5% in 1990 to 3.2% in 2008.
Released: Quarterly, at least one month in arrears; frequently revised.
Advantages
Consumer expenditure or private consumption deflators are derived from current and constant price estimates of total consumer expenditure. This reflects actual spending, which is arguably better than the consumer prices basket approach of outlays by an average family. It also avoids a selective approach when specifying what goes in the basket.
In addition, consumer prices data are collected at one point each month, while deflators relate to averages over the period, usually three months at a time. The deflators normally include an imputed figure for house rents, which is less distorting than the interest-rate approach used for the British RPI and the Canadian CPI.
Problems
Deflators are not available as rapidly as consumer price indices and the deflators are revised more often. Movements in implicit price deflators reflect changes in the composition of consumers’ expenditure as well as changes in prices (fixed-weight deflators avoid this problem). The personal sector is broader than households; it often also covers unincorpor ated businesses (such as farms, pension funds and trusts) and private non-profit bodies (such as charities and trade unions).
Bottom line
Consumer expenditure deflators should be used with care. They usually provide a valuable alternative to consumer price indices. If nothing else, they are a useful check on the signals from other inflation indices.
GDP deflators
Measures: Overall national price changes.
Significance: Broadest indicator of inflation.
Presented as: Quarterly and annual index numbers.
Focus on: Percentage changes.
Yardstick: OECD average GDP deflators rose by 8.0% a year during the 1980s and by 2.7% a year during the period 2000–08.
Released: Quarterly, at least one month in arrears; frequently revised.
Definition
Deflators measure the difference between current and constant price GDP and its components. For example, if GDP increases by 2% in real terms and 5% in nominal terms, the implied economy-wide rate of inflation is 3%.
Deflators can be found at any level of detail from one component of consumer spending or business in vestment right up to total GDP (see Table 13.1). They are not always published, but they can be readily calculated in index form if current and constant price data are available: for each period divide the current by the constant price data and multiply by 100.
Table 13.1 Comparative inflation rates, 2008
Table 13.8 GDP deflators
Unless otherwise stated, most deflators are implicit price deflators. These measure changes in the composition of GDP as well as changes in price. Fixed-weight indicators show changes in price only (see page 198).
Use
Deflators are valuable for identifying trends and obtaining advance warning of price changes in many areas.
The consumer expenditure deflator is an important alternative to the consumer prices index (see pages 219–22). The overall GDP deflator (also known as the index of total home costs per unit of home output) is the best indicator of overall economy-wide inflation.
Since deflators cover many items and price movements self-cancel to some extent, deflators do not fluctuate as much as narrower indices such as those covering consumer prices or producer prices.
Appendix
Useful websites
Here is a list of some useful websites for official statistics:
International
European Union
Eurostat
www.ec.europa.eu/eurostat
European Central Bank
www.ecb.int
IMF
www.imf.org
OECD
www.oecd.org
United Nations
www.un.org
United Nations Population Fund
www.unfpa.org
United Nations Conference on Trade and Development
www.unctad.org
World Bank
www.worldbank.org
National statistical offices/central banks
Australia
Bureau of Statistics
www.abs.gov.au
Reserve Bank
www.rba.gov.au
Austria
Statistik Austria
www.statistik.at
National Bank
www.oenb.at
Belgium
National Institute of Statistics
www.statbel.fgov.be
National Bank
www.nbb.be
Brazil
Institute of Statistics and Geography
www.ibge.gov.br
Central Bank
www.bcb.gov.br
Canada
Statistics Canada
www.statcan.gc.ca
Bank of Canada
www.bankofcanada.ca
China
National Bureau of Statistics
www.stats.gov.cn
People's Bank of China
www.pbc.gov.cn
Finland
Statistics Finland
www.tilastokeskus.fi
Bank of Finland
www.bof.fi
France
INSEE
www.insee.fr
Bank of France
www.banque-france.fr
Germany
Federal Statistical Office
www.destatis.de
Bundesbank
www.bundesbank.de
India
Ministry of Statistics
www.mospi.nic.in
Reserve Bank
www.rbi.org.in
Ireland
Central Statistics Office
www.cso.ie
Central Bank
www.centralbank.ie
Italy
ISTAT
www.istat.it
Bank of Italy
www.bancaditalia.it
Japan
Statistics Bureau
www.stat.go.jp
Bank of Japan
www.boj.or.jp
Mexico
National Institute of Statistics, Geography and Informatics
www.inegi.org.mx
www.banxico.org.mx
Netherlands
Statistics Netherlands
www.cbs.nl
Netherlands Bank
www.dnb.nl
Russia
Federal State Statistics Services
www.gks.ru
Central Bank
www.cbr.ru
South Korea
Statistics Korea
www.kostat.go.kr
Bank of Korea
www.bok.or.kr
Spain
National Institute of Statistics
www.ine.es
Bank of Spain
www.bde.es
Sweden
Statistics Sweden
www.scb.se
Bank of Sweden
www.riksbank.se
Switzerland
Federal Statistical Office
www.bfs.admin.ch
Swiss National Bank
www.snb.ch
UK
National Statistics
www.ons.gov.uk
Bank of England
www.bankofengland.co.uk
US
FedStats (links to federal government statistics)
www.fedstats.gov
Commerce Department, Bureau of Economic Analysis, US Census
Bureau
www.bea.gov
www.census.gov
US Treasury
www.ustreas.gov
Federal Reserve
www.federalreserve.gov
Links to central banks
Bank for International Settlements
www.bis.org/cbanks.htm
Index
accelerator
accounting conventions
adjustable pegs
advanced countries
Afghanistan
Africa
sub-Saharan
see also South Africa
age structure
agriculture
non-food agriculturals
aid, foreign
Algeria
America
broad money
budget deficit
Census Bureau
Commodity Research Bureau (CRB)
competitiveness
Conference Board
construction
currency
current-account deficit
Department of Commerce
dominant position of economy
Dow Jones Industrial Average
drought (1988)
employment
exports/imports
Federal funds market
and financial crisis (2008)
financial year
GDP
GNP
gold production
gold purchase
government spending
house prices
household savings
industrial production
investment in
labour force
level of government
M1–3 measures
migration
narrow money
oil prices
personal income
price data
recession
shadow economy
share prices
Standard and Poor’s 500 stock index
statistical publications
subsidies
tax revenues
trade deficit
trends and cycles
unemployment
University of Michigan
US Institute for Supply Management
see also US Federal Reserve
Angola
annualised and doubling rates
Arab countries
arbitrage
Armenia
Asia
employment
labour costs
newly industrialised economies
Asian crisis (1997)
assets
fixed
foreign
net foreign
physical
reserve
“safe” liquid
sales
values
Australia
construction
currency
employment
financial year
gold production
house prices
industry
statistical publications
surveys
Austria
statistical publications
unemployment
Azerbaijan
balance of payments
accounting quirks
deficits
net inflows
surpluses
workers abroad
Bank of England
monetary policy committee
Bank of Japan
bank lending
base weighting
basis points
Belarus
Belgium
construction
statistical publications
unemployment
benefits
rates
social security
birth rates
black economy
blips
bond spread
bond yields
bonds
benchmark
corporate
government
index-linked
yields and the economic cycle
yields and prices
bonuses
book values
borrowing
consumer
corporate
and financial liberalisation
government
and interest rates
new
see also public-sector borrowing requirement
borrowing requirement
Botswana
bottlenecks
bottom line
Brazil
Bretton Woods
Britain
broad money
construction
deficits
employment
and ERM
and the euro
and financial crisis (2008)
financial year
FTSE indices
GDP
GfK
GNI
and gold
industry
inflation
manufacturing
narrow money
Office for National Statistics
personal income
price indices
and recession
shadow economy
standard industrial classification (SIC)
statistical publications
surveys
Treasury
unemployment
budgets
balances
cuts
deficits
projections
social security
surpluses
buildings
purchase
Bulgaria
business confidence
business cycle
Canada
currency
employment
financial year
GDP
house prices
labour force
and recession
statistical publications
capacity
constraints
full
productive
slack
total
use
utilisation
capital
flows
international
foreign
transfers
capital account
capital consumption see depreciation
capital flight
capital gains
capital-and-financial account flows
capital:labour ratio
carousel fraud
cash totals
CBI see Confederation of British Industry
central banks
and the exchange rate
intervention by
monetary statistics
own currencies
policy rates
see also Bank of England; Bank of Japan; Federal Reserve; Riksbank
central European countries
certificates of deposit (CDs)
chain-weighting
charities
China
CIF (cost, insurance and freight)
CIPS (Chartered Institute of Purchasing)
classifications
closed economies
commercial paper
commodity breakdown
Commonwealth of Independent States
comparing selected countries (2008)
competitiveness
decline in
export
import price
international
price
Confederation of British Industry (CBI)
construction
construction orders and output
construction spending
consumer boom
consumer confidence
consumer price index see price indices
consumer sector
consumers
consumption
capital
government
personal
private
total
convergence
core hours
corporate paper
cost pressures
cost-push see supply shock
country groups
CPI see price indices
credit
agreements
consumer
controls
personal
risks
standby
trade
credit crunch (2007–08)
creditworthiness
currency
and central banks
in circulation
conversion rates against euro area
currencies
currencies and the SDR
domestic
fall in value
floated
foreign
and gold
national
pressures on
reserves
single European currency
stronger
supply and demand for currencies
weakness
see also exchange rates; money
current account
balances
deficits
inflows
outflows
surpluses
current balance
current flows
current weighting
cycles
company savings
construction
inventory
investment
price
replacement
short-term
world
cyclical patterns
cyclical swings
cyclical variation
Cyprus
Czech Republic
debits
debt
crisis
external
forgiveness
national
Guide to Economic Indicators Page 20
