An tSaoi24/01/2010

An Saoi: The recently published inflation figures set me thinking as to how they are calculated here and in various other countries. Thankfully each country publishes the weightings it gives under various headings based on their domestic baskets. I have set out in a Table below the weightings for Ireland and four other countries under the general headings used.

The differences in some cases are extraordinary, reflecting cultural and taxation differences. The Irish weighting for alcohol & tobacco consumption is over 20% compared to just 8% for the Germans and 6% for Norwegians. This is partially a reflection on taxation however it is mainly a cultural issue. Are we really that dependent on legal drugs?

The other area where Ireland is out of kilter is housing. Housing & related utility costs have a weighting of over 30% in Germany & Norway while only 16.5% in Ireland. The lucky Italians allocate just 10% of their expenditure on such costs. And they have the sun for most of the year! Taxation or in this case the lack of it keeps Irish housing costs artificially low.

With all of the money the Italians save on housing, no wonder they are the best dressed people in Europe. They allocate nearly twice as much of their expenditure on clothing as the dowdy Germans. Of course unlike us and the Brits, they have not discovered the pleasures of throwaway clothing from Penny’s/Primark! They also spend far more than anyone else on food, nearly 17% of expenditure.

Irish consumer expenditure on education accounts for just 2% of our spending, but the Norwegians, with a similar number of young people spend just .24%. Private schools and rugby are clearly unknown in Oslo, Tromsø & Bergen. We also spend far more on communications (for poorer services) than anyone else.

Amusing as the differences and possible stereotypes are, e.g. the Irish are clearly scruffy drunks and the Italians spend all their time in the kitchen wearing Armani, there was a more serious reason for looking at the figures.

Housing and related costs accounted for 70% of the fall in prices in 2009. We still pay far more than citizens in most other countries for goods and services. There must remain considerable room for price falls in 2010 and even 2011 as our prices move closer to European norms. Changes in taxation, such as further lowering of VAT and replacing it with property based taxation can help. I must also mention once more commercial rents which remain the largest cost for many small businesses.

There is a serious challenge for a Government to manage such an adjustment without sending us into a Japanese style spiral of deflationary depression.

Posted in: EconomicsEconomicsEconomics

Tagged with: Deflationdepressionprice inflation



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