Adjustment of the price index of electricity in the releases of the Consumer Price Index and the Harmonised Index of Consumer Prices for August 2023

Statistcs: consumer price index

Date of change: 14.09.2023

Information about the change

Background

Statistics Finland publishes monthly the rate of inflation (%) that measures the change in the consumer prices of goods and services compared with the corresponding month of the previous year. Inflation is determined with the Consumer Price Index (CPI), which is compiled by collecting consumer prices of products and services all around Finland every month. These price observations cover all consumer goods and services from daily consumer goods to petrol, rent and energy.

For decades the data source for the sub-index of electricity has been the Finnish Energy Authority's obligation to deliver price, which has been useful for this purpose despite the liberation of the electricity market to competitive tendering on 1 July 1995. The price of electricity has remained on a reasonable level for decades and households have not had actual need to put consumer prices out to tender. In the early 2000s, an increasing number of households started to swap their electricity supplier for a lower price, e.g. around 10.9 per cent of electrically heated households changed their electricity supplier in 2009.

At the end of 2021, wholesale prices of electricity rose across Europe and the Nordic countries. The reason was the lower than usual filling degree of water supplies, but also the peaks of wholesale prices of hard coal and natural gas at the end of the year. In Finland, the rise amounted to an average of 158 per cent in 2021. In March 2022, Russia attacked Ukraine as a result of which the EU imposed sanctions against Russia to counter the attack. The supply of natural gas and hard coal from Russia decreased, for which reason the wholesale price of electricity in Europe rose further.

Due to the unexpected events on the electricity market, the obligation to deliver price was no longer a sufficient data source for measuring the price development of electricity. Therefore, the data of Statistics Finland's own price inquiry on electrical energy (in this document a.k.a reference index), which cover indefinite, fixed-term and exchange agreements from the biggest sellers of electricity, were introduced in the Consumer Price Index in September 2022.

Presentation of the adjustment

Statistics Finland carries out an adjustment to the price index of electricity included in the Consumer Price Index because the rise in prices has been erroneously taken into account twice in the index. The rise in prices was for the first time included in the index in January 2022, when the price increase reflected an increase in the obligation to deliver prices and the second time the same corresponding price increase in November 2022. The double-counting of price increase was identified only later, when it was possible to compare time series compiled from different data over a longer period of time.

Statistics Finland calculates the national Consumer Price Index and the Harmonised Index of Consumer Prices (HICP) according to the same practices. Because of this, Statistics Finland has agreed on the correction with Eurostat, the Statistical Office of the European Union.

The adjustment has been made to the now released data on the Consumer Price Index and the HICP for August 2023. The adjustment was also included in the publication of the preliminary data of the HICP on 31 August 2023.

Adjustment calculation and results

The time series of the published price index of electricity was compared with the price development of Statistics Finland's own data collection (reference index) from December 2020. The figure below presents both the increase of the electricity prices in the obligation to deliver prices in January 2022 and the increase of electricity prices in the Statistics Finland's own price inquiry in November 2022, as well as the impact on the Consumer Price Index and the Harmonised Index of Consumer Prices and the index of electricity. The published price index and the reference index have been calculated using the same, Statistics Finland’s data source since September 2022, therefore the monthly-rates-of-change (%) are the same.

The level of the price index of electricity will be adjusted in such a way that the overall price change of electricity between 2021 and August 2023 corresponds to the price change shown by the reference index. The year 2021 was chosen because there were no uncertainties in the source data at that time.

The figure below also shows the price development of the published price index of electricity after the adjustment compared to the reference index.

 The figure shows the published electricity price index after the correction and the reference index in parallel. The published index of electricity prices is corrected to the level of the reference index.

Impact on total inflation of the Consumer Price Index and the Harmonised Index of Consumer Prices

The impact on rate of change of the CPI data is 0.60 percentage points (HICP 0.70). The tables below show what inflation would have been in August 2023 on the CPI and the HICP, if the adjustment of electricity index had not been made now. For the sake of comparison, the annual changes now realised were also included. In August 2023, the CPI would have been 6.21 per cent (HICP 3.83) in case no adjustment has been made. Now, with the adjusted electricity index the annual-rate-of change on CPI is 5.61 per cent (HICP 3.13).

The Consumer Price Index with the adjustment and without it, August 2023

Commodity

Annual-rate-of-change (%) without adjustment

Annual-rate-of-change (%) with adjustment

Difference, percentage points

Consumer Price Index

6.21

5.61

0.60

Housing, water, electricity, gas and other fuels

10.43

8.14

2.29

Electricity, gas and other fuels

4.90

-7.37

12.27

Electricity

3.79

-14.93

18.72

The Harmonised Index of Consumer Prices with the adjustment and without it, August 2023

Commodity

Annual-rate-of-change (%) without adjustment

Annual-rate-of-change (%) with adjustment

Difference, percentage points

Consumer Price Index

3.83

3.13

0.70

Housing, water, electricity, gas and other fuels

4.01

0.26

3.75

Electricity, gas and other fuels

4.90

-7.37

12.27

Electricity

3.79

-14.93

18.72

The correction will affect the annual change of the Consumer Price Index and the Harmonised Index of Consumer Prices until July 2024, because the previous year's index point used in the calculation of the annual change will be at the original, uncorrected level until then.

According to international principles, the Consumer Price Index will not be corrected retrospectively. Consequently, the Harmonised Index of Consumer Prices will not be revised either.