Since the onset of inflation in Europe at the beginning of 2022, Tefficient has been reporting on its progress through a series of LinkedIn posts and tweets. We have compared the overall inflation to the inflation within the ‘Communication’ component of the European Central Bank’s Harmonised Index of Consumer Prices (HICP).
The ‘Communication’ component closely reflects telecommunication prices, encompassing telecommunication services and equipment, albeit also including postal services. In August 2023, it accounted for 2.7% of the expenditure weight in HICP for the Eurozone.
If we rewind to a year ago, Europe’s telecommunications companies had a significant ‘inflation deficit’ when compared to the overall inflation. The graph below illustrates the gap between:
- The overall annual inflation rate
- The annual inflation rate within ‘Communication’
In every EU country, there was an inflation gap in ‘Communication,’ meaning that the overall inflation rate exceeded the inflation rate within ‘Communication.’ This implies that ‘Communication’ never acted as a driver of overall inflation; in fact, it contributed to lowering it.
When we focus on the Euro area, which includes all ‘€’-marked countries, the overall inflation rate was 9.8 percentage points (pp) higher than within ‘Communication’ in the year leading up to August 2022.
- Finland had the the lowest inflation gap: +2.7 pp
- Estonia had the largest inflation gap: +27.7 pp
Now, let’s fast forward to the year after and examine the inflation gap from August 2022 to August 2023. To facilitate comparison, the scale remains consistent in both graphs.
The red bars are now significantly more compact than in the previous year, indicating that EU’s telecommunications companies have managed to narrow much of the inflation gap over these twelve months. In the Euro area, the gap reduced from +9.8 pp to +5.2 pp. Thanks to increased telecommunication prices and lower overall inflation, the ‘inflation deficit’ is now much less of a concern than it was a year ago.
Finnish providers seem to have successfully turned this macro development into a beneficial outcome. In contrast, providers in Austria, France, and Malta have much work ahead if they intend to do the same.
Notably, there are even green bars, indicating a decrease. In Finland, Spain, Latvia, and Denmark, ‘Communication’ inflation outpaced the overall inflation, suggesting that ‘Communication’ drove overall inflation. Telecommunication providers in these countries have compensated — or even overcompensated — for the overall inflation.
- Finland had the lowest inflation gap: -3.3 pp
- Malta had the largest inflation gap: +13.6 pp
Whether telecommunication providers should fully compensate for overall inflation is another question. However, Finnish providers seem to have successfully turned this macro development into a beneficial outcome. In contrast, providers in Austria, France, and Malta have much work ahead if they intend to do the same.