Background for doing seasonal adjustment

Price index series may be affected by regular seasonal movements which result from sales seasons, vacation practices and similar factors. Often such effects would mask the short-term, underlying movements of the series. By correcting for identifiable seasonality the evaluation of a series may be made more perceptive.

European HICP

European indices are not seasonally corrected by official compilers. Notice that the ECB perform a indirect adjustment of the main aggregates (ECB (2000)). We seasonally adjust the european indices using the same methodology as is used by the Bureau of Labor Statistics to adjust the CPI for the US (BLS Handbook and homepage).

Below are listed main the main methodological points:

  • Seasonal factors used in computing the seasonally adjusted indexes are derived by the X12-ARIMA Seasonal Adjustment Method
  • Seasonal facotrs are updated yearly with the release of January data
  • The seasonal model is estimated using the latest 10 years of data
  • The seasonal correction is done on base indices and chain linked aggregates are recalculating
  • Only items that could for which statistical test confirm seasonality are seasonally corrected


Example from Austrian clothing prices (monthly changes)
References
  • BLS Handbook of Methods, Appendix A. LINK
  • ECB, Seasonal Adjustment of Monetary Aggregates and HICP for the Euro Area, Working Paper, European Central Bank, 2000