Definition: Harmonized Index of Consumer Prices at constant ta...

Category: Prices

The HICP-CT is defined as an index where tax rates are kept constant in the observation period, i.e. through time. Hence, in the event of a tax rate change, the difference between the current HICP-CT and HICP would indicate the effect of the tax rate change on price changes assuming tax changes are passed on instantaneously and fully. It should be noted that the term "rate" refers in this note to the tax parameter; a tax rate may be a certain percentage of the price, or an absolute tax amount levied on a physical unit. It is a Laspeyres price index.

The HICP-CT follows the same computation principles as the HICP, but is based on prices at constant tax rates. These series show the potential impact of changes in indirect taxes (e.g. VAT and excise duties) on the overall inflation.

The HICP-CT is an important tool for analysing the causes of inflation and for forecasting the impact of future tax changes on inflation. It has to be emphasised that they do not provide an exact measure of the impact, rather an indication for the upper limit of the impact. In effect, the difference between HICP and HICP-CT growth rates points to the theoretical impact of tax changes on overall HICP inflation, assuming an instantaneous pass-through of tax rate changes on the price paid by the consumer (Source: HICP-CT manual).

Index that measures changes in consumer prices without the impact of changes in rates of taxes on products over the same period of time  (Source: Commission Regulation (EU) No 119/2013 establishing harmonised indices of consumer prices at constant tax rates) http://ec.europa.eu/eurostat/ramon/statmanuals/files/hicp-ct_manual_EN.pdf Commission Regulation (EU) No 119/2013 of 11 February 2013 amending Regulation (EC) No 2214/96 concerning harmonised indices of consumer prices (HICP): transmission and dissemination of sub-indices of the HICP, as regards establishing harmonised indices of consumer prices at constant tax rates