Harmonised Index of Consumer Prices
Encyclopedia
The Harmonised Index of Consumer Prices (HICP) is an indicator of inflation and price stability for the European Central Bank
(ECB). It is a consumer price index
which is compiled according to a methodology that has been harmonised across EU countries. The euro area HICP is a weighted average of price indices of member states who have adopted the euro. The primary goal of the ECB is to maintain price stability, defined as keeping the year on year increase HICP below but close to 2% for the medium term. In order to do that, the ECB can control the short term interest rate
through Eonia
, the European over night index average, which affects market expectations. The HICP is also used to assess the convergence criteria
on inflation which countries must fulfill in order to adopt the euro. In the United Kingdom, the HICP is called the CPI and is used to set the inflation target of the Bank of England
.
The HICP differs from the US CPI in two primary aspects. First, the HICP attempts to incorporate rural consumers into the sample while the US maintains a survey strictly based on the urban population. In actuality, the HICP does not fully incorporate rural consumers since it only uses rural samples for creating weights; prices are often only collected in urban areas. The HICP also differs from the US CPI by excluding owner-occupied housing from its scope. The US CPI calculates "rental-equivalent" costs for owner-occupied housing while the HICP considers such expenditure as investment and excludes it.
The Bureau of Labor Statistics
, the producer of the U.S. CPI, calculated an experimental index designed for direct comparison with the HICP. In addition, the Division of International Labor Comparisons
at the Bureau of Labor Statistics compiles international comparisons of the HICP for different countries.
European Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
(ECB). It is a consumer price index
Consumer price index
A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...
which is compiled according to a methodology that has been harmonised across EU countries. The euro area HICP is a weighted average of price indices of member states who have adopted the euro. The primary goal of the ECB is to maintain price stability, defined as keeping the year on year increase HICP below but close to 2% for the medium term. In order to do that, the ECB can control the short term interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
through Eonia
Eonia
Eonia is an effective overnight interest rate computed as a weighted average of all overnight unsecured lending transactions in the interbank market. It has been initiated within the euro area by the contributing panel banks.It is one of the two benchmarks for the money and capital markets in the...
, the European over night index average, which affects market expectations. The HICP is also used to assess the convergence criteria
Convergence criteria
The euro convergence criteria are the criteria for European Union member states to enter the third stage of European Economic and Monetary Union and adopt the euro as their currency...
on inflation which countries must fulfill in order to adopt the euro. In the United Kingdom, the HICP is called the CPI and is used to set the inflation target of the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
.
The HICP differs from the US CPI in two primary aspects. First, the HICP attempts to incorporate rural consumers into the sample while the US maintains a survey strictly based on the urban population. In actuality, the HICP does not fully incorporate rural consumers since it only uses rural samples for creating weights; prices are often only collected in urban areas. The HICP also differs from the US CPI by excluding owner-occupied housing from its scope. The US CPI calculates "rental-equivalent" costs for owner-occupied housing while the HICP considers such expenditure as investment and excludes it.
The Bureau of Labor Statistics
Bureau of Labor Statistics
The Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...
, the producer of the U.S. CPI, calculated an experimental index designed for direct comparison with the HICP. In addition, the Division of International Labor Comparisons
Division of international labor comparisons
The International Labor Comparisons Program of the U.S. Bureau of Labor Statistics adjusts economic statistics to a common conceptual framework in order to make data comparable across countries...
at the Bureau of Labor Statistics compiles international comparisons of the HICP for different countries.
See also
- Consumer price indexConsumer price indexA consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...
- Monetary Union Index of Consumer PricesMonetary Union Index of Consumer PricesThe Monetary Union Index of Consumer Prices is a weighted average of European Monetary Union countries' HICP . It is widely used a measure of inflation throughout the Eurozone - the countries with the Euro as their currency.- See also :* Harmonised Index of Consumer Prices* Consumer price index*...
- Google - public data: Harmonized Index of Consumer Prices in Europe
External links
- Harmonized Indexes of Consumer Prices: Their Conceptual Foundations ECBEuropean Central BankThe European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
working paper no. 130 (PDFPortable Document FormatPortable Document Format is an open standard for document exchange. This file format, created by Adobe Systems in 1993, is used for representing documents in a manner independent of application software, hardware, and operating systems....
856 KBKilobyteThe kilobyte is a multiple of the unit byte for digital information. Although the prefix kilo- means 1000, the term kilobyte and symbol KB have historically been used to refer to either 1024 bytes or 1000 bytes, dependent upon context, in the fields of computer science and information...
) - HICP Short Guide for Users Eurostat
- HICP section on Eurostat's website Eurostat
- International comparisons of HICP by the Division of International Labor ComparisonsDivision of international labor comparisonsThe International Labor Comparisons Program of the U.S. Bureau of Labor Statistics adjusts economic statistics to a common conceptual framework in order to make data comparable across countries...