CSO publication, , 11am
Harmonised Indices of Consumer Prices (HICP) were developed in the European Union (EU) for the purpose of assessing whether prospective members of the European Monetary Union (EMU) would pass the inflation convergence criterion. It has subsequently acted as the measure of inflation used by the European Central Bank (ECB) to assess price stability in the euro area. One of the main requirements, therefore, was for a measure that could be used to make reliable ‘like-for-like’ comparisons of inflation rates across EU Member States. Such comparisons are not generally possible using national Consumer Price Indices (CPIs) due to differences in index coverage and construction.
The rules underlying the construction of HICP indices for EU Member States are specified in a series of EU Regulations (legal documents). These have been developed by Eurostat (the Statistical Office of the European Communities) in conjunction with the National Statistical Institutes (NSIs) of Member States of the EU. The current framework Regulation was published in 2016 i.e. Regulation (EU) 2016/792 of the European Parliament and of the Council of 11 May 2016 on harmonised indices of consumer prices and the house price index, and repealing Council Regulation (EC) No 2494/95 The framework Regulation is supported by a series of detailed implementing measures.
Many of the methodological developments in the HICP since its introduction in 1996 have also been applied to the CPI. HICPs are not intended to replace national CPIs. These indices are designed expressly for international comparisons within the EU. The NSIs of the Member States and Eurostat have been collaborating closely over the last number of years to ensure comparable standards are applied in the compilation of HICPs.
Eurostat describes the HICP as a Laspeyres-type ‘consumer inflation’ or ‘pure price’ index, “measuring average price change on the basis of the changed expenditure of maintaining consumption patterns of households and the composition of the consumer population in the base or reference period” (Report from the Commission to the Council on Harmonisation of Consumer Price Indices in the European Union, COM (2000)742). ‘Pure’ means that, strictly speaking, only changes to prices are reflected in the index.
Like the CPI, therefore, the HICP measures inflation with reference to the changing cost of a fixed basket of goods and services. The HICP in Ireland is calculated from the same basic price data as the CPI, and uses the same methodology both in compiling and aggregating the component price indices. However, it does differ from the CPI in terms of the coverage and classification of goods and services (see Appendix 6 for details of the differences). The most significant single difference is the exclusion of mortgage interest, as owner occupied housing is currently not included in the coverage of the HICP.
When the HICP was launched it was referenced on 1996=100. It was subsequently re-referenced to 2005=100 in January 2006 and further re-referenced to 2015=100 in January 2016. A change in reference period is always accompanied by a full re-referencing of the retrospective indices back to 1996. For further information see the relevant information note on the CPI Methods page on the CSO website. ADD LINK
The HICP in Ireland is a chain-linked series with links in November 1996, December 1999, December 2000, December 2001, December 2006 and December 2011. It has been annually updated since 2011.
Harmonised indices of consumer prices at constant tax rates (HICP-CT) are HICPs where the rates of taxes on products are kept constant in the observation period compared to the reference period, i.e. through time. Hence, in the event of a tax rate change, the difference between the current HICP-CT and HICP would indicate the effect of the tax rate change on price changes assuming tax changes are passed on instantaneously and fully.
Changes in tax rates which enter into force on the 1st day of the month shall be reflected in the compilation of the indices for the same month. Changes in tax rates which enter into force at a later date during the month shall be reflected in the compilation of the indices for the following month.
Coverage and classification of the HICP-CT
The HICP - administered prices (HICP-AP) are a series of inflation indices, which were first released by Eurostat in February 2010. These new indices provide a summary of the development of administered prices (those prices directly set or influenced to a significant extent by the government), and their complement, prices which are not administered.
The HICP-AP is an important tool for analysing the causes of inflation and for forecasting inflation. It should be emphasised that these indices do not provide an exact measure of the development of administered and non-administered prices. In effect, the basic information from which these aggregate measures are derived does not fully distinguish administered and non-administered prices. HICP items which cover more than 50% administered prices are classified as administered.
The classification of administered prices is updated on an annual basis. There are no prices which are directly set by Government in Ireland, but some prices are influenced by Government generally through the regulator for that market. See information below on COICOP categories which are administered and the changes that occurred over the last number of years:
Fully administered: 04.42 (up to December 2006)
Mainly administered: 04.41 (from January 2015); 04.43 (from January 2015); 04.51(up to December 2011); 04.52 (up to December 2014); 06.30; 07.31 (from January 2011); 07.32; 07.35 (from January 2011); 08.10; 12.53 (up to December 2008)
Price stability within the euro area is defined by reference to the Monetary Union Index of Consumer Prices (MUICP). The ECB defines price stability as a ‘year on year increase in the HICP for the euro area of below but close to 2%’. The HICPs of each member of the euro area are aggregated to calculate the MUICP. The MUICP is a weighted average of each of the countries in the euro area. Each countries’ share is based on its percentage of the total Household Final Consumption Monetary Expenditure (HFCME) in the euro area. HFCME is defined as: