HICP methodology

The harmonised indices of consumer prices (HICPs) are a set of European Union (EU) consumer price indices (CPIs) calculated according to a harmonised approach and a single set of definitions. This article outlines the aims and methodology of the HICPs, summarises the main harmonised standards and notes some key items on the agenda for further harmonisation. The HICP development project is ongoing. This article describes the state of development of the HICPs at the end of 2007.

The HICPs have a legal basis in that their production, and many elements of the specific methodology to be used, is laid down in a series of legally binding European Union Regulations.

The main HICPs

The HICPs on which most attention is focused are:

Beyond these there are also the European Economic Area index of consumer prices (EEAICP) and HICPs for the individual countries in the European Economic Area (EEA) and Switzerland. There are also interim HICPs for candidate countries. It is expected that once those countries accede to the EU their HICPs will be fully comparable with those of the existing Member States. The national HICPs are produced by the national statistical institutes, while the country-group aggregates are produced by Eurostat.

The official country-group aggregates reflect the evolution of economic and monetary union (EMU), the EU and the EEA. New Member States are chained into the index at the time of accession. In addition to these official aggregates, Eurostat computes also country aggregates with stable composition over time. For example, the aggregate 'EU-27' shows price indices covering all current 27 Member States since 1997.

Uses of the HICPs

Consumer price indices have a variety of potential uses, for example for indexing social benefits or contracts, or as inputs into various types of economic analyses. Following the Maastricht Treaty, the main thrust of the harmonisation project has been the use of the HICPs as convergence criteria and the main measure for monitoring price stability in the euro area. The HICPs have been set up to provide the best measure for international comparisons of consumer price inflation in the EU and the euro area, and for assessing price convergence and stability in the context of monetary policy analysis.

In the early stages of the project until 1998, the main use of the HICPs was in assessing the price stability and price convergence required for entry into Economic and monetary union. Since then, convergence in terms of price stability for new potential Members of the EMU has been assessed regularly by means of the HICP.

From 1999 onwards, the focus of interest shifted towards country-group aggregates — and in particular the euro area. This change of emphasis reflects the European Central Bank (ECB) objective of price stability and the view that the HICPs are the most appropriate price measure for assessing price stability. The focus of the HICPs on measuring price stability and convergence, and on international comparisons, does not mean that a wider range of users should not or cannot use HICPs for other purposes. Depending on the precise purpose the user has in mind, the HICPs may be the best available price statistics. All users of the HICPs should note, however, that the HICPs are revisable; the indices may change after the initial results are published.

A harmonised methodology for the HICP and minimum standards

On 23 October 1995, the European Union’s Council of Ministers adopted a Regulation providing the legal basis for the establishment of a harmonised methodology for compiling consumer price indices in the Member States and European Economic Area countries. This Regulation 2494/95 (the HICP Framework Regulation) required that HICPs be produced and published, use a common reference base, provide common coverage of consumer goods and services, and share a common classification. A series of specific measures has been adopted to implement the HICP Framework Regulation.

The approach taken to harmonisation has been to build, as far as possible, on the EU Member States’ existing data sources and methodologies for their national CPIs. The legal standards typically take the form of minimum standards, whereby more than one solution to a harmonisation issue may usually be allowed so long as comparability is not jeopardised. Within this framework, by end-2007, a series of 17 legally binding standards and some additional guidelines had been drawn up and implemented.

On 1 December 2010 a Regulation 1114/2010 laying down detailed rules for the implementation of Regulation 2494/1995 as regards minimum standards for the quality of HICP weightings and repealing Regulation 2454/1997 was published.

Compliance monitoring

Given the importance accorded to the accuracy, reliability and comparability of the HICPs in the EU, Eurostat operates a system of compliance monitoring to ensure that the legal framework is adhered to. This includes compliance assessments on the basis of questionnaires and visits by Eurostat officials to the EU national statistical institutes to study their work on their HICPs in more detail.

Compliance monitoring is crucial in promoting confidence in HICP data and Eurostat needs to be assured that Member States are complying with the Regulations in order to support the obvious need for high quality HICP Statistics. Recommendations are published and followed up by Eurostat. The follow-up process ensures that the recommendations are taken up. If required, further follow-up visits by Eurostat can be made.

Basic concepts

Aim and scope of the HICPs

The aim of the HICPs was stated to be to measure inflation on a comparable basis, taking into account differences in national definitions. This, however, requires an operational definition of the term “inflation”.

Given the opinion and the needs of the HICPs’ main users, it was decided to compute the HICPs as Laspeyres-type price indices, based on the prices of goods and services available for purchase in the economic territory of each EU Member State for the purpose of directly satisfying consumer needs.

Based on this concept and by reference to national accounts, specifically the European system of national and regional accounts (ESA95), the coverage in practice of the HICPs was taken to be household final monetary consumption expenditure. This definition effectively prescribes the goods and services, the population and the geographic territory to be covered, as well as the prices and the weights to be used.

The HICP may thus be described as a Laspeyres-type “consumer inflation” or “pure price” index, which measures average price changes on the basis of changed expenditure on maintaining the consumption pattern of households and the composition of the consumer population in the base or reference period.

The term “pure price index” indicates that it is only changes in prices that should be reflected in the HICP measure between the current and the base or reference period. The HICP is therefore not a cost of living index. That is, it is not intended to be a measure of the change in the minimum cost for achieving the same standard of living (i.e. constant utility) from two different consumption patterns realised in the two periods compared, and where factors other than pure price changes may enter the index.

Household final monetary consumption expenditure (HFMCE)

The coverage of the HICPs is delimited by HFMCE, and so concerns that part of final consumption expenditure which is:

  • by households, irrespective of their nationality or residence status;
  • in monetary transactions;
  • on the economic territory of the EU 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.

The prices used in the HICP should be the prices paid by households to purchase individual goods and services in monetary transactions. The purchaser’s price is the price for the products that the purchaser actually pays at the time of purchase.

The weights of the HICP are the aggregate expenditures by households on any set of goods and services covered by the HICP, expressed as a proportion of the total expenditure on all goods and services within the coverage of the HICP.

The HICPs are classified according to the four-digit categories and sub-categories of the COICOP/HICP (Classification of individual consumption by purpose adapted to the needs of HICPs).

The concept of HFMCE not only specifies the coverage, the prices and the weights for the HICP, but also establishes a link between HICPs and ESA95 that has proved useful to analysts and policy-makers. HICP definitions follow ESA95 wherever possible and when to do so is consistent with the aims and uses of the HICP. That said, there are some differences between the coverage of the HICPs and that of household final consumption expenditure (HFCE) as defined by national accounts, in particular the treatment of owner-occupied housing.

Some basic requirements for HICPs

The relative distribution of consumers’ expenditure on individual products varies from country to country. Hence, there is no uniform basket applying to all EU Member States. The weights used in the compilation of HICPs may relate to a reference period up to seven years prior to the current year. In practice, this results in a complete weight and sample revision of national HICPs in at least five-yearly intervals, taking into account that a period of about two years may be needed to incorporate the results of a full consumer expenditure survey. Adjustments must nevertheless be made each year for any especially large changes in expenditure patterns, to minimise any disparities that could arise from different update frequencies.

To keep the HICPs broadly in step with each other and up to date, new products must be included when they achieve a significant relative importance. HICPs must also be shown to be based on appropriate sampling procedures, taking into account national diversity in products and prices.

The samples must be kept up to date, in particular by banning the practice whereby missing prices are simply assumed to be equal to the last observed prices. In order to measure pure price changes, the prices included in HICPs need to be adjusted for changes in the quality of goods and services. Certain inappropriate quality adjustment practices, such as so-called automatic linking, may not be used.

HICP aggregates for country groups are calculated as the weighted average of the national HICPs, using the weights of the countries and sub-indices concerned. The weight of a country is its share of HFMCE in the total.

Coverage

Goods and services

The coverage of goods and services in the HICPs has been expanded over time. The HICPs now cover virtually all of HFMCE. The main difference from the ESA95 concept of HFCE is the exclusion of owner-occupied housing.

The initial coverage of goods and services in the HICPs, although fairly comprehensive, reflected for the most part what was common to the national consumer price indices. Since then, with considerable effort and cooperation by EU Member States, coverage has been extended to virtually all consumer expenditure, in the sense of HFMCE. In particular, the difficult areas of health, education and social protection services are now covered, as are insurance and financial services. These are included in the HICPs according to agreed definitions, thus ensuring comparability despite major institutional differences.

Geographic and population coverage

The HICP Framework Regulation required the HICPs to be based on the prices of goods and services available for purchase on the economic territory of the EU Member State for the purposes of directly satisfying consumer needs. As regards the economic territory and the consumers concerned, a harmonised definition of the geographic and population coverage of the HICP was necessary both to achieve comparability and to avoid gaps or double counting when aggregating national HICPs.

HICP coverage includes expenditure by foreign visitors and expenditure by individuals living in institutions, but excludes expenditure by residents whilst in a foreign country (this is the so-called domestic concept). All private households are to be included, irrespective of the area in which they live or their position in income distribution. Expenditure incurred for business purposes should be excluded.

The choice of the domestic concept reflected the role of the MUICP in measuring price stability in the euro area. Price changes in the euro area are measured by aggregating price changes taking place within the individual EU Member States.Expenditure and price changes to be measured within the economic territory should include those affecting foreign visitors and exclude those affecting residents whilst in a foreign country.

It is an HICP requirement that HICPs should be compiled using weights which reflect the HFMCE of all households. HICPs which cover only a subset of households should nevertheless be regarded as comparable if this difference in practice accounts for less than one part per thousand of the total expenditure to be covered by the HICP.

Computation issues and price sampling

Weights for the HICP sub-indices

The weights for the HICP sub-indices are the aggregate expenditure by households on any set of goods and services covered by the HICP, expressed as a proportion of the total expenditure on all goods and services within the coverage of the HICP.

The quality requirements for HICP weights call for a minimum action of review and adjustment to ensure sufficient quality. A comparability threshold determines when weights must be reviewed and updated. Imposing the cost of high precision for all weights or frequent updating of weights was not considered justified at the outset of the project.

The review requirement involves checking each year those weights which are judged to be most critical for reliability and relevance and, hence, for the comparability of the overall HICP. These are primarily the weights for index components where significant market changes have accompanied atypical price movements. Where a weight is identified as deficient, EU Member States should make an improved estimate and introduce an appropriate adjustment, from the following January index, where this would exceed the threshold effect of 0.1 percentage points (on average for one year compared with the previous year). The aim is to ensure that the adjusted weights are the best estimates that can be made on the information available.

Index formulae

The choice of the index formula to be used for the HICP is made at two levels:

  • the level of the macro-formula; that is, the choice between a chained index with annual links and a fixed base index with links up to five years;
  • the level of the micro-formula; within each level there is the issue of reference period, both for prices and for weights.

Macro index formula

The HICP is required to be a Laspeyres-type index. Although the HICPs produced by the EU Member States differ in detail, they can all be broadly described as Laspeyres-type indices. They are all price indices in which the month-to-month movements in prices are measured as an average of price indices using expenditure weights which are an appropriate reflection of the consumption pattern of the consumer population in the weight reference period.

In practice, there are three types of common reference or base periods used in the construction of HICPs:

  • the “weighting reference period” is defined as the 12-month period to which the volumes of the current expenditure weights refer;
  • the “price reference period” is the period from which the current price change is measured and from which prices are used as denominators in the index calculations; it refers to the prices used for the volume valuation in the current weights;
  • the “index reference period” is the period for which the index is set to 100 index points.

The HICP is, depending on the macro-formula applied in practice for its computation, potentially a chained index. It should be stressed that this is the equivalent chain form of the fixed base index which simply allows chained and fixed indices to be expressed by a common formula. The chaining becomes effective if and only if there are changes to the weights currently used, for instance on the grounds of the HICP review requirements for weights.

In practice, some EU Member States compile fixed base HICPs while others compute chain HICPs with annual weight updating. In order to obtain a set of HICPs with sub-indices allowing consistent aggregations, it is necessary to present the HICPs as if they were all computed with the same formula. Hence, it was necessary to apply a common price reference period and a common index reference period.

Since 2006, the index reference period has been set to 2005 = 100. In order to obtain a common price reference period, too, the weights for each year are “price updated” to December of the previous year.

Elementary aggregate indices

HICP methodology defines an elementary aggregate by reference to the expenditure or consumption covered by the most detailed level of stratification of the HICP. In practice, reliable expenditure information is normally not available for weighting purposes within an elementary aggregate. As a consequence, an elementary aggregate index is a price index for an elementary aggregate comprising only price data.

For the HICPs, elementary aggregate indices are computed as the ratio of geometric average prices or the ratio of arithmetic average prices. The arithmetic mean of price relatives may only be applied in exceptional cases and where it can be shown that it is comparable.

The level at which macro-aggregation changes into elementary aggregation

The level of elementary aggregation interacts with other design features such as sampling procedures and the availability of weighting information. Depending on the sources of the weights used, elementary aggregation may start at different levels in different countries in the product, geographic and outlet hierarchies.

Differences in national practices can affect the resulting HICPs but this issue was, in the first instance, not considered to be a priority for harmonisation and no action has been undertaken up until now. This issue is likely to be taken up again as the harmonisation process develops.

Computation of country aggregates

The HICP country group aggregates for the euro area, the EU and the EEA are calculated by Eurostat using the HICPs provided by the Member States.

The computation consists of three main steps. For all countries, price changes since December of the previous year are derived from the HICPs. Then the weighted average of these national price changes is computed, using the weights of the countries and sub-indices concerned. The weight of a country is its share of HFMCE in the total of the country group. The annual price change of the country group is then chain-linked to December of the previous year in order to provide a series with a common reference period.

The euro area aggregate, the MUICP, is compiled as a weighted average of the countries comprising the euro area. The country weights are derived from national accounts data for HFMCE, naturally expressed in euro. The index is computed as an annual chain index allowing for country weights to change each year and, consequently, for adding new Member States as they join the euro area.

For the EU and EEA HICP aggregates, the euro area is treated as a single entity to which data for the other countries is then added (the weights again use national accounts data, converted into purchasing power standards). Note that for EU enlargement in May 2004, chain-linking was also added in May to maintain the correct country coverage for both the EU and EEA aggregates.

Sampling of prices

To achieve a reliable and comparable representation of the HICP target universe, each country should select a target sample, which is a set of products. Prices should then be observed for the selected products over time. Where products cease to be available on the market they should be replaced by comparable items from the same consumption segment.

There are three important sampling dimensions to take into account:

  • the elementary product groups, defined as a set of products that are sampled in order to represent one or more consumption segments in the HICP;
  • the outlet dimension;
  • the regional dimension.

An elementary product group can be stratified, for instance by regions, cities or outlet types. The entity at the lowest level of stratification is referred to as an “elementary aggregate”.

Random sampling is not easily achieved when it comes to collecting prices for a CPI and in practice most EU Member States follow purposive sampling procedures for their HICPs. Sufficiently large sample sizes are necessary to ensure that comparability is achieved. HICPs which have enough elementary aggregates to represent the target universe and enough prices within each elementary aggregate to take account of the variation of price movements in the population are regarded as reliable and comparable.

Where no price observation is possible because the product offer is not available, estimated prices can be used for a maximum of two consecutive months. From the third month onwards, the product offer needs to be replaced in the sample. Appropriate quality adjustment needs to be applied in this case.

In 2007, more than 2.7 million prices were collected for the HICP every month in the 27 EU Member States. Approximately 370 000 outlets are surveyed in more than 2 300 cities or municipalities.

Price collection and treatment of price observations

Timing of price collections and of entering prices into the HICP

Price collections for goods must take place across at least one working week period at, or near, the middle of the calendar month to which the index pertains. For products that are known to typically show sharp irregular price changes within the same month, prices are collected over a period of more than one working week. This holds in particular for energy products and for fresh food, such as fruit and vegetables.

While 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 of the service at the observed prices can commence.

The treatment of price reductions

HICP methodology requires that price reductions must be:

  1. attributable to the purchase of an individual good or service;
  2. available to all potential consumers with no special conditions attached;
  3. known to the buyer at the time when he or she entered into the agreement to buy the product concerned;
  4. claimable at the time of purchase or within such a time period from the actual purchase that they might be expected to have a significant influence on the quantities buyers are willing to buy.

Specific guidelines advise on how various price reduction schemes should be treated, such as sales prices, credit and payment arrangements, inducements, discounts, rebates or refunds.

Missing or rejected price observations

In order to ban practices which can lead to serious bias, EU Member States are asked to maintain and provide a statement of their target sample from month to month. Where prices are not observed, they must be estimated by an appropriate procedure.

In general, the prices reported by the price collectors should be accepted. Rejection or adjustment of reported prices, for example the correction of an unusually high or low price change, should not be carried out by automatic procedures, but only by reference to specific information on the individual price observation, such as a repeat observation. If, following a validation procedure, the reported price must nevertheless be rejected, the rejected price should be treated according to the rules for missing observations.

The guidelines leave it to EU Member States to apply methods other than those specified. Where an EU Member State does not use the methods specified, Eurostat may request it to show that the resulting HICP does not differ systematically from an HICP constructed in line with the specified methods by more than 0.1 percentage points on average, taking one year against the previous year.

Prices for new products

The HICP Framework Regulation requires HICPs to be kept relevant, meaning broadly in step with each other and up to date in terms of market developments. Neither the formulae used to calculate the index nor the frequency with which the basket of goods and services is renewed can fully address the basic problem: the risk of bias if the introduction of new products is used as an opportunity to increase or decrease prices.

What is meant by the term “new product” is not always precise. In particular, there is no sharp dividing-line between new models and varieties of previously existing products and genuinely new innovative products which fulfil needs that could not be fulfilled before.

In the HICP, new varieties are mostly introduced as a replacement and the prices are then subject to quality adjustment, while new innovative products are introduced by addition.

Quality adjustment

For the HICPs, quality change is said to occur whenever the change in specification has resulted in a significant difference in utility (or functionality) to the consumer between a new variety or model of a good or service and the good or service previously selected for pricing. A quality change does not arise when there is a comprehensive revision of the HICP sample.

Quality adjustment is defined as the procedure of making an allowance for a quality change by increasing or reducing the observed current or reference prices by a factor or an amount equivalent to the value of that quality change. Quality adjustments should be based on explicit estimates of the value of the quality change. Where no estimates are available, price changes should be estimated as the whole difference between the price of the substitute and that of the item it has replaced.

EU Member States are required to examine their quality adjustment procedures and to avoid the so-called automatic linking method, which is equivalent to the assumption that the difference in price between two successive models is wholly attributable to a difference in quality. They should monitor the incidence of quality changes and the adjustments made in order to demonstrate their compliance with HICP standards.

Despite the existing legal standards, differences between HICPs may arise because the same changes in the physical characteristics of an item are still perceived and treated in different ways in different countries. This is not to say that the same quality characteristic must be valued to the same extent in different EU Member States, only that the principles and procedures for valuation should be harmonised. In practice, differences in quality adjustment procedures between countries may not average out across the goods and services covered by the indices. On the contrary, they are likely to cumulate to differences well in excess of 0.1 percentage points.

Quality adjustment is one of the most, if not the most, intractable harmonisation issues for the HICP. Eurostat and the EU Member States are currently involved in developing and rating quality adjustment methods. So far, standards have been agreed for clothing, footwear, books, recorded media, computer games, and for cars and other vehicles.

Newly-significant goods and services

Newly-significant products should be incorporated in the HICP as soon as they achieve a sales volume of one part per thousand of total consumer expenditure in the EU Member State.

Additions are brought into the index for two main reasons:

  • a new product (e.g. MP3 player) was not represented in the index, and would not normally be considered as a replacement because it was radically different from the existing products;
  • a product was previously available, but was not explicitly represented in the index because consumption of it was too low.

In the case of new products added, the price of the new product is collected in addition to the products already observed; weights for the relevant category of COICOP/HICP are adjusted.

Tariff prices

Many tariff prices faced by consumers relate to products which are or have been regulated by government, or are or have been provided in a monopoly or a monopoly-like situation. Changes are, however, taking place in many EU countries in such markets, as the markets are opened up, and it is important that the impact on consumer inflation is appropriately captured in the HICPs since such products account for a large proportion of total expenditure.

HICP sub-indices involving tariff prices are, in practice, often obtained centrally or directly from suppliers such as major retail chains, or computed by the Member States based on data on tariff prices and their underlying consumption patterns provided by suppliers.

The requirement for the HICP is not only to ensure that EU Member States measure the same price change in a comparable and reliable way, but also to give such legal powers as are necessary to ensure that Member States are in position to have access to the data they need.

Insurance

Since January 2000, the HICPs have covered all insurance connected with a dwelling which is typically paid by the tenant, not only contents insurance, and private health, civil liability and travel insurance. Life insurance is excluded from the coverage of the HICP, as it is considered a household saving.

Weights and prices for insurance should be measured net of claims. However, a price index for gross premiums may be used as a proxy or estimate for changes in the “prices” of net premiums.

Health, education and social protection services

The purchaser prices of goods and services in the health, education and social protection sectors to be used in the HICP should, in accordance with ESA95, be the amounts to be paid by consumers net of reimbursements.

Reimbursements are defined as payments to households by government units, social security administrations or non-profit institutions serving households, which are made as direct consequences of purchases of individually specified goods and services, initially paid for by households. Payments of claims to households by insurance companies do not constitute reimbursements.

A specific legal standard clarifies the treatment of health care reforms in the HICP. In fact, changes in consumer prices should not be measured simply as a result of changes in the eligibility and access rules for social health insurance. Rather changes of the prices within one and the same scheme should be accounted for by means of adjusting the weights and chaining the price indices.

Financial services

EU Member States traditionally followed different practices in measuring prices of financial services in their national CPIs and applied different methods of defining the weights. There was scope for non-comparability in the exclusion of service charges expressed as a proportion of transaction values. A harmonised methodology for the treatment of such charges was thus considered necessary.

The harmonised methodology says that where service charges are defined as a proportion of the transaction value, the purchaser prices should be defined as the proportion itself, multiplied by the value of a representative unit transaction in the base or reference period. The HICP should include charges expressed as a flat fee or flat rate but exclude interest payments and interest-like charges. Changes in purchaser prices which reflect changes in the rules determining them, as well as changes in the purchaser prices resulting from changes in the values of the representative unit transactions, should be shown as price changes in the HICP. The change in the values of the representative unit transactions may be estimated using the change in a price index which represents appropriately the unit transactions concerned.

Release and timeliness of the HICPs

Full HICPs

The full set of HICPs is published each month according to a pre-announced schedule — in general between 14 and 16 days after the end of the month in question. This schedule has advanced significantly since the HICP was first published, as a result of a series of improvements to timeliness made in both the EU Member States and at Eurostat.

Flash estimate of the MUICP

Eurostat also publishes a monthly flash estimate for the MUICP — the HICP for the euro area as a whole. This flash estimate is based on the results from the first countries to publish their national estimates and on energy price data. It gives an early indication of what the MUICP is likely to show when the full data set is available. The estimation procedure combines historical information with partial information on price developments in the most recent months to give a total index for the euro area. No detailed breakdown is available.

Over the two years up to December 2007, the flash estimate exactly anticipated the inflation rate 17 times, and seven times differed by 0.1. The MUICP flash estimate is generally released on the last working day of the month in question.

Data

The HICP data which are released each month cover the price indices themselves, annual average price indices and rates of change, monthly and annual rates of change, and 12 month moving rates of change. None of these are seasonally adjusted.

As well as the all-items HICPs, the full range of around 100 COICOP/HICP indices for different goods and services are made available. The main headings are as follows:

  • food;
  • alcohol and tobacco;
  • clothing;
  • housing;
  • household equipment;
  • health;
  • transport;
  • communications;
  • recreation and culture;
  • education;
  • hotels and restaurants;
  • miscellaneous.

In addition, a series of special aggregates is released, for example:

  • the HICP all items, excluding energy;
  • the HICP all items, excluding energy, food, alcohol and tobacco;
  • the HICP all items, excluding unprocessed food;
  • the HICP all items, excluding energy and seasonal goods;
  • the HICP all items, excluding tobacco.

The weights for the full range of indices including the special aggregates are made available for the individual countries and for all country groups. All of the HICPs, including the complete list of component indices and special aggregates, are accessible via the Eurostat website.

Metadata

The HICP section on the Eurostat website provides access to a full range of HICP information. It gathers together in one place the explanations, reference documents and data already available on Eurostat’s website and will be progressively extended to give further information on key projects, methods and data.

Revisions

Since the main purpose of the HICP is to inform ECB monetary policy for the euro area, and the HICP is a revisable index, clear and transparent policy on revisions is of paramount importance. Also, for the HICP harmonisation process, a decision was needed on how to implement improvements whilst at the same time minimising the difficulties caused to users by introducing discontinuities into the published HICP series.

The published HICP series may be revised for mistakes, new or improved information, and changes in the system of harmonised rules. In particular:

  • mistakes should be corrected and any revisions that may result from such corrections should be implemented without unnecessary delay;
  • new or improved information, for example a more up-to-date weighting structure, may result in revision, provided that Eurostat does not oppose the timing of the revisions to be made;
  • changes in the system of harmonised rules should not require revision of published HICPs unless otherwise stated in the particular implementing measure; the impact of such changes should be assessed, and only if the impact is likely to be significant should it then be estimated for each of the 12 following months, starting with the index for the January in which the change takes place.

Agenda for further harmonisation

The progress made on harmonising consumer price indices does not mean that development is at an end. There are several major issues where further harmonisation will still be necessary. Currently, work is in progress on:

  • Quality adjustment: A HICP standard addressing this issue was adopted in 2007 and laid down the legal basis for implementing concrete methods. Eurostat and the EU Member States are following up an action plan to implement previously agreed best practices for a range of specific goods and services, in particular for cars, consumer durables, books, recordable media, clothing, computers and telecommunications services. Further specific standards will be developed in close cooperation between Eurostat and the EU Member States.
  • Sampling and weightings: Eurostat and the EU Member States plan to develop additional requirements for the HICP.
  • Owner-occupied housing: services provided by owner-occupied housing are currently excluded from the HICPs. Pilot calculations are being carried out using an approach based on the acquisition prices of housing that is new to the household sector — mainly newly constructed dwellings. Indices will be compiled separately from the HICPs on an experimental basis before any decision is made to incorporate them in the HICPs.
  • Assessment and follow up of Member States’ compliance with the legal framework and documentation of Member States’ methods: The implementation of the new strategy on HICP compliance monitoring started in the second half of 2006 and will be further developed in the coming years. This strategy has involved the introduction of a “Country Desk” approach which facilitates the development of country-specific expertise. This means that each country has a nominated Eurostat officer who is responsible for monitoring developments in each country and overseeing all aspects of compliance monitoring. This requires identification of issues, analysis of data, and follow-up and implementation of the recommendations emanating from the compliance monitoring exercises.
  • Impact of indirect taxes and administered prices on the HICP: Pilot work is ongoing for the definition and computation of experimental indices in order to describe the impact of taxes and administered prices on the HICPs.

Other issues currently on the agenda include:

  • the need for more comprehensive quality assurance of the HICP compilation process in the widest sense;
  • support for those countries seeking to join the EU to ensure that their HICPs are fully comparable;
  • consolidation of the legal framework for HICPs, and the production in due course of a methodological manual to assist both compilers and users;
  • treatment of seasonal items: Eurostat and the EU Member States plan to develop additional requirements.

See also

Further Eurostat information

Data visualisation