Harmonised Index of Consumer Prices

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 HICP below 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 US CPI, has recently calculated an experimental index designed for direct comparison with the HICP. [http://www.bls.gov/opub/mlr/2006/05/art3abs.htm]

External links

* [http://www.ecb.int/pub/pdf/scpwps/ecbwp130.pdf Harmonized Indexes of Consumer Prices: Their Conceptual Foundations] ECB working paper no. 130 (PDF 856 KB)
* [http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BE-04-001/EN/KS-BE-04-001-EN.PDF HICP Short Guide for Users] Eurostat
* [http://epp.eurostat.ec.europa.eu/pls/portal/url/page/PGP_DS_HICP HICP section on Eurostat's website] Eurostat

See also

* Consumer price index


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