Which is the Harmonized Index of Consumer Prices?
The Harmonized Index of Consumer Prices (HICP) measures EU inflation. Prices paid by families for a typical basket of goods and services have changed throughout time. The European Central Bank (ECB) utilizes the HICP for the Eurozone, which includes 19 EU members utilizing the euro, to achieve price stability (defined as 2% yearly inflation over the medium term).
The Harmonized Index of Consumer Prices
Each EU country’s statistical agency uses a standard HICP methodology. Eurostat, a European Commission department, calculates the MUICP, the aggregate HICP for the 19-country Eurozone region, as the ECB’s key inflation indicator, using national HICPs. Eurostat produces the EU-wide and European Economic Area Index (for Norway, Iceland, and Liechtenstein). And the European Index of Consumer Prices (EICP).
Eurostat’s monthly flash estimate of the Eurozone’s MUICP is critical economic data for financial markets.
Each country’s HICP tracks the price change of a basket of goods and services that reflects household expenditure. The index measures the costs of coffee, tobacco, meat, fruit, home appliances, autos, medications, energy, apparel, and other popular commodities and services. The HICP excludes owner-occupied housing prices; however, the ECB’s Governing Council suggested them in 2021.
Weighted Baskets
Eurostat generates the Monetary Union Index of Consumer Prices by weighting the HICP from each euro area country by its percentage of Eurozone consumer expenditure. The HICP of each nation tracks the price change of a basket of goods and services that households buy. Annually revised consumer goods and services baskets and nation weightings match current spending patterns. The MUICP was created in 1998, before the euro’s January 1, 1999, introduction.
Conclusion
- The Eurozone and EU’s Harmonized Index of Consumer Prices (HICP) measures inflation.
- The HICP measures consumer price inflation by weighting EU national consumer expenditure by the proportion of aggregate consumer spending.
- Financial markets rely primarily on the monthly flash estimate of the Monetary Union Index of Consumer Prices, which tracks Eurozone inflation in the 19 EU members utilizing the euro.
- The ECB utilizes the MUICP to target 2% inflation to achieve medium-term price stability.
