Definition: Harmonised Indices of Consumer Prices (HICPs)

Category: Social statistics

Harmonised Indices of Consumer Prices (HICPs) are harmonised inflation figures required by the Commission and the European Central Bank for the performance of their functions under Article 121 of the EC Treaty. HICPs are designed to facilitate international comparisons of consumer price inflation. They serve as important indicators for the management of monetary policy. The Monetary Union Index of Consumer Prices (MUICP) is created by aggregating the HICPs of the euro-zone countries. The ECB has defined price stability in the euro-zone with reference to the MUICP as "a year-on-year increase in the HICP for the euro area of below 2%" and reaffirming this in 2003 added that "it will aim to maintain inflation rates close to 2% over the medium term". Council Regulation (EC) No 2494/95 of 23 October 1995 provides for an overall framework for the HICPs. This framework is completed by detailed implementing measures through Commission and Council Regulations. The HICP is produced in each Member State using a harmonised methodology. Amongst the HICPs available are an all-items HICP and more than 100 sub-indices and special aggregates. The sub-indices correspond to a slightly derived version of the COICOP.

HICPs aim to measure pure price changes, unaffected by changes in the quality of items which are bought. Therefore, if necessary, prices included in HICPs are adjusted for changes in the quality of goods and services to which they relate. HICPs should cover new products when they achieve a sales volume of over one part per 1 000 of total consumers' expenditure in a Member State.

The coverage of the HICP is defined as those goods and services which are included in Household Final Monetary Consumption Expenditure (HFMCE). This is defined as that part of final consumption expenditure which is incurred by households irrespective of nationality or residence status; in monetary transactions; on the economic territory of the Member State; on goods and services that are used for the direct satisfaction of individual needs or wants; in one or both of the time periods being compared. In particular, HICP coverage includes expenditure by foreign visitors and expenditure by individuals living in institutions, but excludes the expenditure made by residents whilst in a foreign country (domestic concept). Expenditure incurred for business purposes is also excluded. Owner-occupiers' shelter costs, expressed as imputed rents or mortgage interest payments are excluded.

The prices used in the HICP are the prices paid by households to purchase individual goods and services in monetary transactions. The purchaser's price is the price the purchaser actually pays and is net of reimbursements, subsidies, and discounts. Prices for goods are entered into the HICP for the month in which they are observed. Prices for services are entered into the HICP for the month in which the consumption can commence.

The weights of the HICP are based upon aggregate expenditures by households on a set of goods and services covered by the HICP, expressed as a proportion of the total HFMCE in a Member State. The relative distribution of consumers' expenditure on individual products varies from country to country, hence there is no uniform basket applying to all Member States.

The Monetary Union Index of Consumer Prices (MUICP) is calculated as a weighted average of the euro-zone regardless of its composition. The index is computed as an annual chain index allowing for country weights to change each year. The country weight of a Member State is its share of HFMCE in the euro-zone total. The country weights used are based on National Accounts data referring to the year ending two calendar years prior to the current year. They are updated to December prices of the latest calendar year prior to the current
one.

The European Index of Consumer Prices (EICP) is calculated as an annual chain-index, where the euro-zone countries are treated as one entity. It covers the 15 EU Member States until April 2004 and 25 Member States starting from May 2004. The new Member States are integrated into the EICP using a chain index formula. http://ec.europa.eu/eurostat/ramon/coded_files/KS-DY-04-001-EN.pdf Council Regulation (EC) No 2494/95 concerning harmonized indices of consumer prices