Economics

Harmonized Consumer Price Index (HICP)

What is the Harmonized Consumer Price Index (HICP)?

The Harmonized Consumer Price Index (HICP) is the final list of costs consumers pay for a basket of common goods. It is a comprehensive measure of EU inflation.

key takeaways

  • The Harmonized Consumer Price Index (HICP) is a composite measure of inflation in the euro area.
  • The HICP takes consumer price inflation data from each of the ECB’s member states and weights them accordingly into an index.
  • The HICP index relies on a basket of consumer goods from rural and urban areas in each country.

Understanding the Harmonized Consumer Price Index (HICP)

The Harmonized Consumer Price Index (HICP) is developed by each European Union (EU) member state to measure inflation and guide the European Central Bank (ECB) in setting monetary policy. Each country’s HICP measures changes over time in the price of a basket of goods and services acquired, used or paid by households in that country.

The prices measured by the HICP are derived from representative commodity prices in the urban and rural pricing model. The index tracks the prices of commodities such as coffee, tobacco, meat, fruit, household appliances, cars, medicines, electricity, clothing and many other widely used products. Owner occupancy costs are not included in the HICP. The HICP is also used as the basis for the Monetary Union Consumer Price Index (MUICP), a composite measure of consumer inflation.

The main objective of the ECB is price stability, which it defines as an annual HICP rate of 2% or less in the euro area. HICP and MUICP data releases are critical to how the ECB sets monetary policy in the euro area. MUICP is also known as Eurozone HICP.

MUICP Aggregated HICP

The Monetary Union Consumer Price Index (MUICP) is calculated using a weighted average of the HICPs for each country in the euro area. Each country’s HICP measures changes over time in the price of a basket of goods and services acquired, used or paid by households in that country. All EU countries use the same HICP method, allowing them to be compared with each other and aggregated to calculate MUICP.

Eurostat collects data provided by the national statistical offices of each member state on price changes and consumer spending patterns in the economy. According to Eurostat, HICPs cover the entire final consumption expenditure of all types of households to provide a timely and relevant picture of inflation.

The basket of consumer goods and services and the weights for each country are updated annually to reflect current consumption patterns. The weight of each country represents its share of the total final currency consumption expenditure of euro area households.

The MUICP was launched in 1998 with 11 EU countries that would become members of the euro area when the euro was introduced on 1 January 1999.

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