Owner-occupied housing costs to have disinflationary effect in the Eurozone

Our modelling suggests incorporating owner-occupied housing costs would lower eurozone headline inflation from Q3 2022 by 0.3ppts, with negative contributions persisting into 2023. Owner-occupied housing costs (OOH) are excluded from the eurozone’s key inflation measure (HICP), but one of the ECB’s flagship measures from last year’s strategy review was to better account for them when setting monetary policy.

What you will learn:

• We don’t think the swing in OOH contributions from lifting to lowering our augmented-HICP inflation measure is large enough to shift the ECB course given how high inflation readings are at the moment.
• However, it provides a dovish element into the ECB’s assessment, which is likely to involve difficult trade-offs in 2023.
• In August, we added OOH and HICP-augmented variables to our Global Economic Model, providing baseline and scenario forecasts for 11 countries plus the eurozone as a whole.