October inflation rate peaks at 1.4%

In October 2021, the annual rate of inflation as measured by the Harmonised Index of Consumer Prices (HICP) was 1.4% up from 0.7% in September 2021, NSO statistics published yesterday reveal. The 12-month moving average rate for October stood at 0.35.

The largest upward impact on annual inflation was measured in the Food and non-alcoholic beverages Index (+0.53 percentage points), while the largest downward impact was recorded in the Restaurants and hotels Index (-0.38 percentage points).

The HICP measures monthly price changes in the cost of purchasing a representative basket of consumer goods and services. It is calculated according to rules specified in a series of European Union (EU) regulations that were developed by Eurostat in conjunction with the EU Member States. The HICP is used to compare inflation rates across the EU; a closely related measure of price movements is the Retail Price Index (RPI).

Each month, the HICP reports on three different measures of inflation:

The annual inflation rate measures average price changes between the reference month and the same month of the previous year. Although responsive to recent changes in price levels, this measure can be influenced by one-off effects in either month.

The monthly inflation rate compares price changes between the reference month and the previous month. This measure can be highly influenced by seasonal effects.

The 12-month moving average rate overcomes the volatility of the above two rates by comparing the average of the latest  12 indices to the average of the previous 12 indices.  This measure is less sensitive to temporary changes in prices.

Price changes and effects on inflation

The highest annual inflation rates in October 2021 were recorded in Recreation and Culture (4.6%) and  Clothing and  Footwear  (3.2%).  On the other hand, the lowest annual inflation rates were registered in Communication (-2.1%) and Alcoholic beverages and tobacco (0.1 per cent).

The HICP depicts the impacts on the annual inflation rate by the 12 main divisions. An impact is a measure showing the change in inflation as a result of the inclusion of an index. Such an impact takes into account both the weight and the annual rate of inflation by division.

In October 2021, the largest upward impact on annual inflation was registered in the Food and non-alcoholic beverages Index (+0.53 percentage points), largely due to higher prices of vegetables.

The second and third largest impacts were measured in the Recreation and culture Index (+0.34 percentage points) and the Housing, water, electricity, gas and other fuels Index (+0.26 percentage points), mainly on account of higher prices of pet food and house maintenance services respectively.

The downward impacts on annual inflation were registered in the Restaurants and hotels Index (-0.38 percentage points) and the Communication Index (-0.07 percentage points), mainly reflecting a lower contribution from accommodation services and lower prices of mobile phone services respectively.

HICP (Malta and euro area)

This section compares the Maltese HICP with the euro area counterpart for the latest available data, that is, September 2021. In September, the annual rate of change registered by the Maltese HICP All-items Index was 0.7%, 2.7 percentage points lower than the 3.4 per cent registered for the euro area.

The annual rate of change for the Maltese All-items HICP excluding energy and unprocessed food was 0.3%, 1.6 percentage points lower than the 1.9% registered for the euro area.

Differences between HICP and RPI

Both indices are compiled using a large and representative selection of more than 440 different goods and services for which price movements are regularly monitored.

Around 10,000 separate price quotations are used each month to compile the Index.

The methodology underlying HICP and RPI is similar, yet they differ by the following:

The RPI captures private households only, whereas the HICP covers private households, institutional households (such as retirement homes) and foreign visitors to Malta.

The population base year of the two indices is different. The RPI is a fixed base index with weights periodically updated in line with the Household Budgetary Survey. On the other hand, the HICP is a chain-linked index with the weights reviewed on an annual basis. Unlike the RPI, where the sample of goods and services changes every time the weights are updated, newly significant goods and services can be introduced in the HICP framework on an annual basis.

The coverage of the HICP is based on an international classification system, COICOP (Classification of Individual Consumption by Purpose), whereas the RPI has a different set of codes for each group of items, as explained in the table below.