The Harmonised Index of Consumer Prices (HICP) is an indicator of inflation and

price stability Price stability is a goal of monetary and fiscal policy aiming to support sustainable rates of economic activity. Policy is set to maintain a very low rate of inflation or deflation. For example, the European Central Bank (ECB) describes price s ...

for the

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(ECB). It is a

consumer price index A consumer price index (CPI) is a statistical estimate of the level of prices of goods and services bought for consumption purposes by households. It is calculated as the weighted average price of a market basket of Goods, consumer goods and ...

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 target on 2% over the medium term. In order to do that, the ECB can control the short-term

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

through Eonia, the European overnight index average, which affects market expectations. The HICP is also used to assess the

convergence criteria The euro convergence criteria (also known as the Maastricht criteria) are the criteria European Union member states are required to meet to enter the third stage of the Economic and Monetary Union of the European Union, Economic and Monetary Un ...

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

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Comparison with the United States

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. Currently, 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 Bureau of Labor Statistics (BLS) is a unit of the United States Department of Labor. It is the principal fact-finding agency for the government of the United States, U.S. government in the broad field of labor economics, labor economics and ...

, the producer of the U.S. CPI, calculated an experimental index designed for direct comparison with the HICP. In addition, since 2006 the

Division of International Labor Comparisons The International Labor Comparisons Program (ILC) of the U.S. Bureau of Labor Statistics (BLS) adjusts economic statistics (with an emphasis on labor statistics) to a common conceptual framework in order to make data comparable across countries. ...

at the Bureau of Labor Statistics has compiled international comparisons of the HICP for different countries.

Controversy on housing prices

In sharp contrast with the US inflation index, the HICP does not include the cost of owner-occupied housing. This has been the subject of criticism from numerous academics, fellow central bankers and members of the

European Parliament The European Parliament (EP) is one of the two legislative bodies of the European Union and one of its seven institutions. Together with the Council of the European Union (known as the Council and informally as the Council of Ministers), it ...

. In June 2018, the

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Mario Draghi Mario Draghi (; born 3 September 1947) is an Italian politician, economist, academic, banker, statesman, and civil servant, who served as the prime minister of Italy from 13 February 2021 to 22 October 2022. Prior to his appointment as prime mi ...

said in a letter to MEP Sander Loones that "the ECB has been, from a conceptual point of view, in favour of the inclusion of an owner-occupied housing price index in the HICP" but that such change required an assessment from the European statistics agency

Eurostat Eurostat ("European Statistical Office"; also DG ESTAT) is a department of the European Commission ( Directorate-General), located in the Kirchberg quarter of Luxembourg City, Luxembourg. Eurostat's main responsibilities are to provide statist ...

. However the

European Commission The European Commission (EC) is the primary Executive (government), executive arm of the European Union (EU). It operates as a cabinet government, with a number of European Commissioner, members of the Commission (directorial system, informall ...

published a report in November 2018 with an assessment of whether or not to take into account the cost of owner-occupied housing (OOH) in the HICP. The report concludes against immediate inclusion in 2018, because a monthly OOH price index is not yet available in all EU countries, and because it would deviate from the current definition of the HICP. The Commission's report also indicates that contrary to what Draghi told MEPs, the ECB had opposed the proposal when consulted by Eurostat. Early 2019, the ECB's chief economist Peter Praet nonetheless announced that work was being underway to include real estate prices into HICP: "In line with the division of responsibilities at the European level, this work is being led by the ECB in the field of financial variables and by Eurostat for the physical market variables. The two institutions are cooperating closely on the topic and we are confident that they will make good progress." Early 2020, ECB president Christine Lagarde hinted the cost of housing may finally be included in the HICP by the end of the ECB's strategic review.Letter from Christine Lagarde to MEP Erin Eroglu
8 May 2020

Notes

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External links

Harmonized Indexes of Consumer Prices: Their Conceptual Foundations
ECB working paper no. 130 (

PDF Portable document format (PDF), standardized as ISO 32000, is a file format developed by Adobe Inc., Adobe in 1992 to present documents, including text formatting and images, in a manner independent of application software, computer hardware, ...

856 KB)
Compendium of HICP reference documents
Eurostat
HICP section on Eurostat's website
Eurostat
International comparisons of HICP
by the

Economy of the European Union Price indices Inflation

Comparison with the United States

Controversy on housing prices

See also

Notes

External links