Inflation: The Estimated Index
Peter Barkow, Till Krueger, Dr. Wolfgang Schnorr | For Free Updates Sign Up to Our Newsletters >> HERE
What Are Imputations and Why Do They Matter?
In short: The German statistical office (destatis) uses estimated values to calculate the Consumer Price Index (CPI), when transactional prices cannot be observed. These estimated values are called imputations or imputed values. destatis explains the imputation process in English here. The paper also contains a very helpful flow chart.
In all likeliness, the accuracy of estimated/imputed values can be considered to be lower than real transactional values. Therefore, a high number of imputations might lead to a lower accuracy of consumer price measurement/indices.
COVID19 Drives Imputations to Record Highs
Below chart shows the number of imputed product categories on a monthly basis. The number of imputations in normal times (eg 2015-2019) is almost always zero. In extraordinary times (eg 2020/21), however, the number of imputations can rise strongly reaching 109 imputed product categories in April 2020 and a record high of 125 in January 2021. The latter represents 19.4% of 645 product categories used to calculate the German Consumer Price Index or 20.45%, when applying category weights. The main driver for the high number of imputations 2020/21 is obviously COVID19 and related lockdowns.
>1/5 of German Consumer Price Index Currently Estimated German Consumer Price Index Currently Estimated
Imputations Seem to Lead to Lower Inflation
In order to get a feel for the impact of imputations, we have separately calculated a (transactional) CPI based on real transaction prices and an imputated CPI based on January 2021 data.
We find that YoY change of the transactional CPI is higher than the imputed CPI. We also find that the MoM change of the transactional CPI is substantially higher than the imputed CPI. The latter was even significantly negative MoM in January.
We obviously don’t know, how real prices for imputed categories would have been. That’s why we need imputations in the first place. Nonetheless, we would consider it likely that imputations currently lead to lower inflation.