Fynsa
The CPI for January rose 0.7% m/m (0.673% m/m), which was above our expectations (0.5% m/m), as well as those from surveys and those implied by financial assets (0.3% m/m). Consequently, the year-over-year rate of change declined to 3.8%, down from the 3.9% at which it had closed out 2023. It is worth noting that a new basket of goods was introduced this time, along with a new base year of 2023 = 100, which also incorporated methodological changes and improvements.
Among the divisions with the most significant changes were Food (+1.0% m/m) and Housing (+1.2% m/m), partially offset by Transportation (-1.6% m/m).
As is common in these processes, the INE published an “official” year-over-year change calculated using a simple splicing method, taking the monthly change and applying it to the historical time series. This was done to ensure consistency between these changes and those of the UF or other indices. Additionally, a reference series was published, calculated by measuring the current basket of goods during the base year. Thus, 12 reference monthly changes and one reference year-over-year change were obtained.
The year-over-year change in the benchmark series was 3.2%, reigniting a debate we thought had been settled after the same issue had arisen during the previous basket adjustment. In simple terms, these changes are not comparable to one another and do not represent a discrete change in level, since they are calculated on different bases. This is extremely important, as it seems to us that their implications for monetary policy have been overstated. In fact, assuming equal monthly changes for both series over the coming months, their year-over-year performance will differ significantly until September, when they begin to resemble each other, eventually converging at the same point in December, by definition.
Although it had already been “announced,” it may have come as a surprise that the CPI series or the CPI ex-volatile items was not published. This is due to the very nature of the indicator, which requires data that changes with a new basket of goods for its calculation. For the time being, there will be no official “excluding volatile items” series until the Central Bank updates its calculation.
Anticipating this problem, and given the flexibility that the Central Bank lacks, we constructed a CPI excluding volatile items using the methodology published by Carlomagno and Sansone (2019) and the product-level basket reconstruction with a 2023 base year. For simplicity, for the optimal “n” of products, we did not minimize the loss function proposed in the paper but instead used the percentage that the previous “n” represented of the total (~65%). Thus, our CPI excluding volatile items consists of 114 products (65.4% weighted share of the basket), of which 70 are Goods (34.33% weighted share of the total) and 44 are Services (31.08% weighted share of the total).
Thus, in January, our core indicator would have risen 0.7% m/m, falling from 4.6% y/y in December to 4.4% y/y.
