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Should we strip hotel prices out when analysing services CPI? (2/2)

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  • And two of these hotels saw large M/M swings in pricing: with one hotel in Wales seeing a 176.4% increase M/M and another hotel in the North West recording a 145% M/M increase.
  • There is a lot of criticism of taking out volatile components in inflation baskets - the volatility can be masking a larger underlying trend - but this example shows how a handful of hotels seeing large price changes can have large impact on the overall subcomponent - and hence on wider services (and headlines) inflation.
  • These issues are nowhere near as prevalent in goods or services that are priced mostly homogenously, but looking into the methodology involved, it is easy to see why some (include MPC members) prefer to strip some of these factors out of the CPI numbers they are looking at.
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  • And two of these hotels saw large M/M swings in pricing: with one hotel in Wales seeing a 176.4% increase M/M and another hotel in the North West recording a 145% M/M increase.
  • There is a lot of criticism of taking out volatile components in inflation baskets - the volatility can be masking a larger underlying trend - but this example shows how a handful of hotels seeing large price changes can have large impact on the overall subcomponent - and hence on wider services (and headlines) inflation.
  • These issues are nowhere near as prevalent in goods or services that are priced mostly homogenously, but looking into the methodology involved, it is easy to see why some (include MPC members) prefer to strip some of these factors out of the CPI numbers they are looking at.