Seasonal Variations

Economic anorak post - for people with an open mind and an interest in economic statistics. Don't  bother to read if you are looking for simplistic "gotcha" information in either direction

As you go through the year, there are various regular cycles in economic activity.

At a time of moderate inflation, for example, prices may be going up a bit faster than the average annual rate at certain times of the year while prices are actually dropping at others. As they did last month.

That wasn't a typo, I didn't mean that the rate of inflation might drop, and did so last month, but that prices might drop in a particular month, and actually did so last month!

What! I hear you respond. The rate of inflation is 4%.

Yes, the annual rate of inflation in the year to January was 4% based on the CPI measure.

And because of these seasonal cycles, the year-on-year change is in many ways the best measure of the underlying inflation rate - as it does not have to be adjusted for seasonal effects.

But that doesn't mean it is wrong or misleading to also quote the month on month change in prices. Which was a fall of 0.6% of a percent.

Yes, prices actually fell by 0.6% in January 2024.

But this is likely to have been mostly a seasonal fall. Because prices also fell by 0.6% in the month of January 2023.

That's why there was no change in the annual rate of inflation between in the 12 months to December 2023 and the 12 months to January 2024. A month with a slight fall in the monthly inflation rises came into the year-on-year calculation at the same time as a month with an identical slight fall dropped out.  

Some people seem to have difficulty understanding the difference between monthly and annual inflation rates. Yesterday the Conservative leader on Three Rivers council wrote a tweet which - correctly -referred to the UK month-on-month inflation as minus 0.6 percent.

The tweet is here: (1) Oliver Cooper on X: "The UK’s inflation was -0.6% in January, meaning prices fell sharply. With average wages rising fast and employment down to 3.8%, this bodes well for lower interest rates and sustainable growth." / X (

He was promptly attacked in the replies by a range of people who didn't quite get what he was saying and accused him of wrongly stating the annual inflation rate. He wasn't: he was correctly stating the month on month inflation rate.

The lesson from this is to make sure you understand when someone quotes an inflation rate, or any other economic statistic, exactly what statistic they are quoting. Which index, which period.

And if you are the person posting the statistic, make sure you provide that information in a clear and transparent way.


Popular posts from this blog

Nick Herbert on his visit to flood hit areas of Cumbria

Quotes of the day 19th August 2020

Quote of the day 24th July 2020