The INSEE updates the French CPI, or Consumer Price Index, each month. Providing insight about inflation rate, financial markets expect each one of this KPI publications. Moreover, this major economic indicator is also used for legal purposes like revaluation of minimal salary or indexation of some state bonds. But how does the INSEE compute this indicator? Which factors influence its evolution the most? Besides the straightforward number lays a complex computation managed by the French public statistics agency.
History Of French CPI Composition
The composition of the French CPI renew every few years and with each move comes an index reset. Last nomenclature update took place in 1998. The index was then set to 100 as a reference for the next years. Previous reset happened in 1990. These updates expect to make the indicator more accurate and compliant to the international law. The 1998 update took the CPI to the COICOP standard set by the European Union office of statistics Eurostat. Harmonization of economic indicators for each country was indeed mandatory before the Euro changeover. These regular alterations make studying French CPI over decades a very challenging task while obtained results have no legal value. Regardless, the INSEE provided CPI values updated with 1998 base 100 until 1990.
French CPI Categories
While the INSEE publishes various versions, the main KPI consists of 12 consumption categories along with sub-categories. Additionally, categories are weighted in order to depict the consumption of an average French household. Data comes from the INSEE but the agency only provides a global overview without charts and extended analysis. However this article does provide sub-category analysis, which could show some interesting facts. This donut shows all the main categories and their respective weights. Total of weights is 10000:
Why does education takes so little place in the French CPI?
Education take very little place in French CPI. With a weight of 21, education competes with beer, a subcategory of alcoholic beverages. The INSEE does not include educative and hospital services in the index, as the state officially supports a large part of these services. Private sector, as important as it could represent in both categories is then excluded from the index.
How are housing prices computed?
Looking at French CPI composition, housing seems very low. With 15% of the index, the housing category includes rent, water, gas, electricity and common housing maintenance. The INSEE explains this low weight arguing that homeowners represent the largest part of the French households (58% in 2007) and consume more than tenants households with their larger revenues, consequently taking more place when computing the index. Also, taxes are not included in the French CPI and land taxes are out for homeowners. In the other side, state support for housing is deducted for tenants, reducing the estimated spendings of poorest households.
Evolution of composition
Categories and sub-categories are reweighed each year to follow consumption evolutions. Hover your mouse over the graph to thicken lines and text.
Despite its low weight, housing shows frank gain, the only one. On the other hand, health and hospitality spendings diverge starting 2002. Others categories are slightly constant, while alcohol/tobacco and clothing converge to become equivalent.
Index Evolution By Category Of Consumption
Once categories identified and weighted comes the value attribution. As seen previously, all values of the French CPI are set to 100 in 1998. The INSEE conducts a constant survey on prices of goods and services and update the index to reflect the evolutions. Still, detailed methods of survey and products references are not disclosed.
Evolution by CPI categories
Alcohol and tobacco
Prices in this category exploded because of taxes increases, at each beginning of the year as showed on the graph. But the price seems to rise out of these yearly evolutions.
The line displays stairs as this category value is updated each year, each several months at the best.
Clothing and Furnitures
Strong laws regulates clearance sales in France. Allowed periods take place twice a year during the month of January and July. The clothing category reaches during these months low levels, far more displayed than household furnitures also affected by clearance sales. The clothing category shows an increase of its variations since 1998.
Hospitality and Catering
Summer is also the periods of vacations and holidays. While clothes are cheaper, hospitality and catering peaks during this period.
In France, health remains a state business. Health remains the most constant category of the French CPI. Indeed the French social protection regulates price of medication and health services consequently preventing prices increases.
Unsurprisingly, communications seems to take more and more place in the French households budget. Also, French CPI shows this category prices dropping. Actually, all French consumers are aware of the complexity of mobile services pricing. It’s also a problem for the calculation the French CPI. The INSEE indeed published a detailed notice about the difficulty to gauge mobile services prices evolutions. However for the hardware, calculation remains easy: hardware is continuously improved through the time, making what INSEE calls “quality” better for cheaper prices. Hard disks are a good example. Indeed, The price of the MB has never been this cheap. Observing price at “constant quality”, hardware spending drops as recently released material is more powerful.
Evolution of the French CPI since 1998
This graph shows the evolution of the French CPI since 1998. Hover your mouse over dots to display index value and variation since the previous month. Economic press traditionally reports the monthly variation.
While the index increase globally, July is usually in negative month, as the hospitality rise does not counteract the clearance sales effects. Additionally, the crisis of Autumn 2008 is clearly displayed on the graph with 7 months of continuous negative variations.
French CPI as a Key Performance Indicator
Even with multiple shadows concerning accuracy of models and legitimacy, the French CPI remains an essential whereas predictable indicator. The index is still very sensitive to structural changes, even the most tiny. The growth of inequalities in France are making the index increasingly hard to calculate while becoming less and less accurate and relevant to real consumption situations. However, the periodical variations in categories are easy to spot and the number rarely surprises when it comes out each month.