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Euro zone housing cost may be adding more to inflation than thought: Holzmann -Breaking

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© Reuters. FILE PHOTO : The skyline of Frankfurt with its financial district is seen as a commuter train moves by it. This happens ahead of the European Central Bank’s (ECB?) governing board meeting in Frankfurt on October 25, 2021. REUTERS/Kai Pfaffenbach

VIENNA (Reuters – The rising cost of housing may have an impact on inflation in the Euro zone, Robert Holzmann from European Central Bank said. This is a crucial issue which has been a major focus for policymakers over the past year.

Austria’s central bank chief Holzmann said that it can raise headline inflation by up to 0.5 percent if owner-occupied homes are more expensive.

Reporters were told that “I heard 0.5” (percentage point). It is not an insignificant amount.

Owner-occupied housing isn’t currently part of the most commonly used measure of inflation called Harmonized Index of Consumer Prices. (HICP) This is an omission that the ECB has complained long about.

According to the ECB, if housing costs were included in inflation calculations, it would lead to “persistently high” inflation from 2014 onwards. Between 2018 and 2020 inflation would be around 0.2–0.3 percentage points higher.

However, some argue that low housing rates continue to push housing prices up and increase inflation.

ECB policymakers had agreed that, while inflation has now been modified to include housing costs and would consider initial estimates of cost for owner-occupied housing.

Holzmann responded to a question regarding the length of time required to modify inflation measures to reflect rising housing costs.

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