Why onions and pigs can give economists a headache

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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 consumers, but can send financial markets tumbling. Politicians, fearing voters’ wrath, scramble to act. In 2013 a 370% jump in wholesale onion prices caused inflation to spike; a sustained shortage led Prime Minister Narendra Modi to tighten export controls the following year.

In China pork is what matters—the country consumes as much hog meat as the rest of the world combined. Unfortunately an epizootic of African swine fever has recently wiped out at least a third of all the pigs in China. This pushed pork inflation to above 47% in August in a market that is already volatile, contributing nearly half a percentage point to headline inflation. In an attempt to abate price pressures China has released meat from its frozen-pork reserves, an emergency facility created in the 1970s (many countries have oil reserves for the same reason).

These are not the only ways in which idiosyncratic price rises trouble the world’s economists. Staff at the International Monetary Fund are suffering from a heady rate of food inflation in their canteen: prices per ounce are up 38% in three years. The result of fewer distortive subsidies, perhaps. Or maybe some sort of programme is needed?

This article appeared in the Special report section of the print edition under the headline "You’re hot then you’re cold"
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