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Marco Valli
Head of Macro Research
Chief European Economist
UniCredit Bank, Milan
Piazza Gae Aulenti, 4 - Tower C - MRE4
I-20154 Milan
+39 02 8862-0537

Marco Valli is Head of Macro Research and Chief European Economist at UniCredit. Previously, he served as Chief Italy Economist from 2006 until mid-2010. Before joining UniCredit in 2004, he worked as a European economist at Fideuram SGR. Marco has a degree in economics and a master's in quantitative finance from Università Bocconi in Milan. He co-authored the study Global Inflation – The Ghost in the Machine?, which was awarded the Rybczynski Prize by the Society of Business Economists in London for the best piece of business economics writing in 2007.

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84a31cdc5cf015ac74ba8c14d9f2a2213fdea4eadd78b6b94efeff702b8d36e4;;[{"layout":"detailed","uid":25821,"publicationDate":"14 Jul 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2021_180711.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJHjzm7tW87YeLMLSmjPLpDw=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Owner-occupied housing in eurozone HICP: Implications and challenges","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> With its strategy review, the ECB confirmed that the Harmonized Index of Consumer Prices (HICP) remains the appropriate measure for assessing the achievement of the central bank\u00b4s new price-stability objective (a symmetric target of 2% inflation over the medium term). However, the Governing Council (GC) acknowledged that 'the inclusion of the costs related to owner-occupied housing in the HICP would better represent the inflation rate that is relevant for households'. Therefore, it recommended a roadmap to include owner-occupied housing (OOH) in the HICP. <\/li><li> Our Chart of the Week shows an attempt to quantify the effects of including OOH in the eurozone HICP. We make a (possibly conservative) assumption that the weight of OOH in the basket would be 10%. Over the last decade, the inclusion of OOH would have raised inflation by an average of 0.1pp per year, although the impact would have differed meaningfully over time. In 2011-13, amid weakness in the housing market, OOH subtracted from the inflation rate, while the opposite holds true in the following years, when inflation would have been 0.2pp higher, on average. This suggests two things. First, the slight increase in the target for inflation, under the new definition of price stability (to 2% from 'below, but close to 2%') changes very little in practice when OOH is taken into account. Second, inflation that includes OOH might become more pro-cyclical. Using a larger weight for OOH does not materially alter the average results, but obviously increases the cyclicality of inflation. <\/li><li> OOH is a tricky concept, as it reflects the costs of purchasing, maintaining and living in one\u00b4s own home. Currently, housing costs in the eurozone mainly enter the HICP through actual rents, with a weight of 6.5%, while the costs of OOH are not included. The perception by eurozone households, which we share, is that the weight of the cost of housing in the HICP basket is too low. Several advanced countries already include OOH in their inflation gauges. As a reference, in US CPI, the weight of actual rents is about 8%, while OOH accounts for most housing costs through the so-called owners\u00b4 equivalent rent, with a weight of about 24%. In the UK, the weight of costs of OOH in the CPI basket is about 16%. The main obstacle for OOH inclusion in the eurozone HICP is measurement issues, including differences in data availability and methodology in the way OOH is calculated by member states\u00b4 national statistics offices. Also, OOH data are currently published with a relatively long lag ' numbers for 1Q21 have only been recently published.<\/li><li> The ECB\u00b4s roadmap foresees four main stages for moving to an HICP including OOH costs as the main index for monetary policy purposes: 1. The construction of an analytical index for internal purposes, which includes OOH with approximated weights; 2 Eurostat to carry out further work on the statistical compilation of OOH weights, with the aim of publishing an experimental quarterly HICP including OOH costs in 2023; 3. An official quarterly index to be available by 2026; 4. OOH costs to be included in the HICP at a monthly frequency and in a timely manner (the ECB does not provide a timetable for this). During the transition period until stage 4 is accomplished, the main reference index for monetary policy will remain the current HICP, although 'the quarterly OOH index will play an important supplementary role in assessing the impact of housing costs on inflation and will thus inform the GC\u00b4s monetary policy assessments'.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","hash":"84a31cdc5cf015ac74ba8c14d9f2a2213fdea4eadd78b6b94efeff702b8d36e4","available":"0","settings":{"layout":"detailed","size":"default","showanalysts":"-1","showcompanies":"-1","showcountries":"-1","showcurrencies":"-1","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M y","nolinktitle":"0","synopsislength":"400","synopsisexpand":"1","shownav":"0","limit":"1"}}]