Harmonized Index of Consumer Prices (HICP) Defined

The Harmonized Index of Consumer Prices (HICP) is an index used by the European Central Bank to measure inflation by measuring the prices of common household commodities across the European Union.

A Little More on Harmonized Index of Consumer Prices (HICP)

The Harmonized Index of Consumer Prices is a list created through the participation of all member nations of the European Union (also called the Eurozone) as a tool for measuring inflation and articulating fiscal policy accordingly. Any change in prices across the member nations is detected by their individual HICP. It should be noted here that HICP differs from the United States Consumer Price Index (US CPI) in that the former tracks the prices of essential goods based on sample data collected from both rural and urban consumers, while the latter only uses sample data collected from strictly urban consumers. The individual HICP data is then aggregated to derive the Monetary Union Index of Consumer Prices (MUICP) or the Euro Area HICP, which is a cumulative measure of inflation across the European Union. The European Central Banks major task after formulating the MUICP is to articulate monetary policy in order to restrict the annual HICP rate to a maximum of 2 percent across the European Union.

MUICP aggregates HICPs

Since its launch in 1998, the MUICP has consistently provided information and statistical analysis of consumer spending pertaining to all 11 member nations of the European Union that adopted the Euro as a common currency of the region, beginning 1999. Since all EU member countries apply the same HICP procedures and terminologies, calculating the MUICP by aggregating their individual HICP has become a quick and easy process. The European Statistical Office or Eurostat is entrusted with the responsibility of collecting consumer data from EU member nation via their respective statistical agencies. Data collected include price variations and buying patterns of consumers. Eurostat then collates the data and conducts a detailed analysis of using accepted statistical methods. This final analysis brings forth an up-to-date and pertinent understanding of inflation in commodity prices across the region. HICPs of individual member nations are updated annually.

References for Harmonized Index Consumer Prices

• https://www.investopedia.com/terms/h/hicp.asp
• http://www.businessdictionary.com/definition/Harmonized-Index-of-Consumer-Prices-HIPC.html