The supply side

You’re hot then you’re cold

How idiosyncratic price rises give economists a headache

IN FEBRUARY 2017 Verizon, an American mobile-phone carrier, started offering mobile-phone connections that put no limits on data. “Unlimited adventures, unlimited laughter, unlimited connections,” promised an advert. They might have added “unlimited woe for central bankers”. The category of inflation in which mobile-phone plans feature subsequently plummeted, dragging overall core inflation down by about 0.2 percentage points at a time when it had been forecast to rise. For the best part of a year the Verizon disinflation became crucial to central bankers’ own communications, as they promised financial markets that the effect would soon wear off.

One-shot changes in prices constantly play havoc with central bankers’ attempts to target inflation down to the last tenth of a percentage point. In early 2019 Germany’s statisticians improved their monitoring of how holiday prices vary with the seasons. Unfortunately this captured volatility that has disrupted the index. In May the prices were 9% down on a year earlier; in June they were 6% up. Package holidays make up nearly 3% of German household consumption, giving them enough weight to cause volatility in overall inflation. And because Germany accounts for nearly one-third of the entire euro-zone inflation basket, the movements are large enough to show up at continental level (just like the tourists themselves).

In India onion prices are an important part of the inflation recipe. The vegetable is prominent in the Indian diet. When prices rise it not only brings tears to the eyes of…