COUNCIL REGULATION (EC) No 1687/98 of 20 July 1998 amending Commission Regulation (EC) No 1749/96 concerning the coverage of goods and services of the harmonised index of consumer prices

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 2494/95 of 23 October 1995 concerning harmonised indices of consumer prices (1), and in particular Article 4 and Article 5(3) thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Central Bank (2),

Whereas, by virtue of Article 5(1)(b) of Regulation (EC) No 2494/95, each Member State is required to produce a harmonised index of consumer prices (HICP) starting with the index for January 1997; whereas the requirement to produce HICPs in no way puts in question the right of Member States to publish their national, non-harmonised, inflation indices, which they may wish to use for national policy purposes;

Whereas Commission Regulation (EC) No 1749/96 of 9 September 1996 on initial implementing measures for Council Regulation (EC) No 2494/95 concerning harmonised indices of consumer prices (3) sets down an initial coverage for HICPs that was restricted to those goods and services covered by all or most national consumer price indices (CPIs); whereas the prices to be taken for the HICP, in particular the treatment of subsidies, rebates and reimbursements, require harmonised definitions; whereas the geographic and population coverage of the HICPs need still to be specified;

Whereas Article 3 of Regulation (EC) No 2494/95 requires that the HICP be based on the prices of goods and services available for purchase in the economic territory of the Member State for the purposes of directly satisfying consumer needs; whereas prices not actually paid by consumers in such purchases or opportunity costs or interest payments are not appropriate for international comparisons of consumer price inflation;

Whereas it is recognised that changes in reimbursements might not have an impact on measures of inflation in a broader context but whereas they do form an essential part of the inflationary process affecting consumers and therefore need to be reflected in the HICP;

Whereas the Statistical Programme Committee (SPC) has not delivered an opinion within the time limit set by its chairman; whereas, in this case, following the procedure laid down in Article 14(2) of Regulation (EC) No 2494/95, the Commission has to, without delay, submit to the Council a proposal relating to the measures to be taken,

HAS ADOPTED THIS REGULATION:

Article 1

Regulation (EC) No 1749/96 shall be amended as follows:

1. Annex I shall be replaced by Annexes Ia and Ib to this Regulation;

2. in the first indent of Article 1 the word 'initial` shall be deleted;

3. subparagraph (a) of Article 2 shall be replaced by the following:

'(a)(1) The "coverage" of the HICP is defined as those goods and services which are included in household final monetary consumption expenditure, as referred to in (a)(2). It is classified according to the four-digit categories and sub-categories given in Annex Ia, which derive from the COICOP international classification and shall be known as COICOP/HICP (classification of individual consumption by purpose adapted to the needs of HICPs).

(a)(2) "Household final monetary consumption expenditure" is defined as that part of final consumption expenditure which is incurred by households in monetary transactions in one or both of the time periods being compared, and specified in Annex Ib. Unless otherwise stated, Annex Ib follows the definitions laid down in the European System of Accounts (ESA) 1995 contained in Regulation (EC) No 2223/96 (*). "Household final monetary consumption expenditure" consists of expenditure incurred on goods and services that are used for the direct satisfaction of individual needs or wants either by:

(a)(2)(a) resident households on the domestic territory or abroad; or

(a)(2)(b) resident and non-resident households on the domestic territory; or

(a)(2)(c) the population of households within the scope of the national household budget survey.

(a)(3) Prices used in the HICP are the purchase prices paid by households to purchase individual goods and services in monetary transactions. Where goods and services have been available to consumers free of charge, and subsequently an actual price is charged, then the change from a zero price to the actual price, and vice versa, should be taken into account in the HICP.

(a)(4) The "weights" of the HICP are the aggregate expenditure by households on any set of goods and services covered by the HICP expressed as a proportion of the total expenditure on all goods and services covered.;

(*) OJ L 310, 13. 11. 1996, p. 1.`

4. Article 3 shall be replaced by the following:

'Article 3

Coverage

1. HICPs compiled from price changes and weights for each category of household final monetary consumption expenditure given in Annex Ia accounting for more than one part in a thousand of the total expenditure covered by all those categories included as specified in paragraph 2, shall be deemed comparable.

2. The coverage of the HICP shall be extended, as follows:

(a) starting with the production of the HICP for January 1997, Member States shall process the data collected covering those categories marked as "initial coverage" as specified in Annex Ia;

(b) on, but not before, the production of the HICP for December 1999, Member States shall process the data collected covering also those categories marked as "December 1999" as specified in Annex Ia.`;

5. in Article 4 the words 'Annex I` shall be replaced by the words 'Annex Ia`.

Article 2

Taking into account the views of the committee set up by Decision 89/382/EEC, Euratom (4), the Commission shall within two years of the date of entry into force of this Regulation compile a report and submit it to the Council. The report shall assess the operation of the provisions of this Regulation, in particular the concept of household final monetary consumption expenditure in relation to relevant alternative concepts. Following this report the Commission may, if necessary, submit appropriate initiatives to the Council for the modification of this Regulation.

Article 3

This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Communities.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 20 July 1998.

For the Council

The President

W. MOLTERER

(1) OJ L 257, 27. 10. 1995, p. 1.

(2) Opinion delivered on 14 July 1998 (not yet published in the Official Journal).

(3) OJ L 229, 10. 9. 1996, p. 3.

(4) OJ L 181, 28. 6. 1989, p. 47.

ANNEX Ia

The coverage of the HICP shall include the following categories of COICOP/HICP:

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ANNEX Ib

A. DEFINITION OF HOUSEHOLD FINAL MONETARY CONSUMPTION EXPENDITURE

1. The household sector includes individuals or groups of individuals (as defined in ESA 2.76.a and 2.76.b) and may or may not include institutional households (as defined in ESA 2.76.b).

2. A resident household has its centre of economic interest within the economic territory of the Member State, which may or may not include territorial or extraterritorial enclaves (as defined in ESA 2.04 to 2.07).

3. A monetary transaction is an economic flow that is an interaction between institutional units by mutual agreement, where the units involved make or receive payments, or incur liabilities or receive assets denominated in units of currency. By convention the collection of household refuse shall be considered as interaction by mutual agreement. Transactions that do not involve the exchange of cash, or assets or liabilities denominated in units of currency, are non-monetary transactions. Intra-unit transactions are normally non-monetary transactions. Non-monetary transactions involving more than one institutional unit occur among transactions in products (barter of products), distributive transactions (remuneration in kind, transfers in kind, etc.) and other transactions (barter of non-produced non-financial assets).

Household final monetary consumption expenditure covers the following borderline cases:

4. It covers items not treated as intermediate consumption, like materials for small repairs to and interior decoration of dwellings of a kind typically carried out by tenants as well as owners, and materials for repairs and maintenance to consumer durables, including vehicles.

5. It covers items not treated as capital formation, in particular consumer durables, that continue to perform their function in several accounting periods; this includes the transfer of ownership of some durables from an enterprise to a household.

6. It covers financial services directly charged.

7. It covers non-life insurance services by the amount of the implicit service charge.

8. It covers all expenditure financed out of non-life insurance claims, including payments made directly by the insurance companies to the garages, hospitals, doctors, etc. This implies that the full price paid by households or by insurance companies to the garages, hospitals, doctors, etc. is covered by the HICP.

Non-life insurance claims are the amounts which insurance enterprises are obliged to pay in settlement of injuries or damage suffered by persons or goods. They are current transfers from the insurance companies to the receiving households and, therefore, enter into the households' disposable income. Any expenditure made as a result, for example payments to garages, hospitals, or doctors, is treated as being incurred by the households and not by the insurance companies. It is irrelevant whether the households actually make the expenditure before the claims are paid out, which then look like social security reimbursements, or whether the payments are made directly by the insurance companies to the garages, hospitals, etc. In the latter case, the companies are treated merely as agents acting on behalf of the households who are still treated as incurring the expenses.

9. It covers payments by households for licences, permits, etc. which are regarded as purchases of services. If the government uses the issue of licences to organise some proper regulatory function, such as checking the competence or qualification of the person concerned, the payments made should be treated as a purchase of services from government and the prices taken in the HICP, but if the licences are being granted automatically on payment of the amounts due, payments should be treated as direct taxes and not prices. Driving or pilot's licences, television or radio licences, firearm licences, museum or library admissions, garbage disposal fees, etc. are treated in most cases as purchases of services rendered by government, whereas licences on the use of vehicles, boats or aircraft are treated in most cases as taxes.

10. It covers the purchase of output at not economically significant prices, e.g. entrance fees for a museum.

Household final monetary consumption expenditure does not cover the following borderline cases:

11. It does not cover income in kind because it is not a monetary transaction (although according to ESA 3.76.b it is included in final consumption expenditure).

12. (a) It does not cover social transfers in kind received by households, including those parts of expenditure initially made by households for which they are subsequently reimbursed by social security, government units or NPISHs, e.g. for medical expenses or education. When a household purchases a good or service for which it is subsequently reimbursed in part or in whole, the household is treated merely as agent acting on behalf of a social security fund, government unit or NPISH. The amounts reimbursed to households are treated as social transfers in kind made by social security, government units or NPISHs. They are not recorded as cash transfers to households and do not form part of households' disposable incomes. This accounting treatment leads to the same result as when a social security fund purchases the goods and services from market producers and then re-sells them to households at low non-market prices. This implies that the price taken for the HICP is the amount paid by the household less the reimbursement.

(b) All other rebates by public authorities, especially housing payments to tenants in order to reduce their rents (including payments which at the tenant's discretion go directly to the landlord), are considered as social benefits in cash and, therefore, enter into households' disposable income. This implies that the full price of the good or service before the rebate is covered by the HICP.

13. It also does not cover services of owner-occupied dwellings, because these are no monetary transactions (although according to ESA 3.76.a it is included in final consumption expenditure).

14. It does not cover the purchase of dwellings, and items treated as acquisitions of a non-produced asset, in particular the purchase of land.

15. It also does not cover expenditure that an owner-occupier incurs on the decoration, maintenance and repair of the dwelling not typically carried out by tenants.

16. It does not cover the expenditure on valuables.

17. It does not cover expenditure by households owning unincorporated enterprises when incurred for business purposes.

18. It does not cover current taxes on income and wealth, which are all compulsory, unrequited payments, in cash or in kind, levied periodically by general government and by the rest of the world on the income and wealth of institutional units, and some periodic taxes which are assessed neither on the income nor the wealth. Other current taxes include all those payments by households for licences which are to be regarded as taxes, such as licences to own or use vehicles, boats or aircraft, etc.

19. (a) It does not cover subscriptions, contributions and dues paid by households to NPISHs, like trade unions, professional societies, consumers' associations, churches and social, cultural, recreational and sports clubs.

(b) However, if a club, union, society or association can be considered as a market producer selling its services at an economically significant price, which usually is the case even though the legal status may be a non-profit organisation, then the subscriptions, contributions and dues paid by households are considered as payments for the services rendered - not as a transfer - and, thus, covered by the HICP.

20. It does not cover voluntary transfers in cash or in kind by households to charities, relief and aid organisations.

21. It does not cover payments of property income, including interest. Property income is the income receivable by the owner of a financial asset or a tangible non-produced asset in return for providing funds to, or putting the tangible non-produced asset at the disposal of, another institutional unit. Under the terms of the financial instrument agreed between them, interest is the amount that the debtor becomes liable to pay to the creditor over a given period of time without reducing the amount of principal outstanding.

22. It does not cover compulsory or voluntary social contributions, such as employers' actual social contributions to social security funds, insurance enterprises or autonomous as well as non-autonomous pension funds administering social insurance schemes to secure social benefits for their employees, or employees' social contributions payable to social security, private funded and unfunded schemes.

23. It does not cover life insurance and pension funding services (although according to ESA 3.76.f and g such services are included in final consumption expenditure by the amount of the implicit service charge).

24. It does not cover net non-life insurance premiums. These are premiums payable under policies taken out by institutional units. The policies taken out by individual households are those taken out on their own initiative and for their own benefit, independently of their employers or government and outside any social insurance scheme. Net non-life insurance premiums comprise both the actual premiums payable by policy holders to obtain insurance cover during the accounting period (premiums earned) and the premium supplements payable out of the property income attributed to insurance policy holders, after deducting the service charges of insurance enterprises arranging the insurance. (NB: this service charge is covered by the household final monetary consumption expenditure). Net non-life insurance premiums are the amounts available to provide cover against various events or accidents resulting in damage to goods or property, or harm to persons as a result of natural or human causes, for example fires, floods, crashes, collisions, sinkings, theft, violence, accidents, sickness, or against financial losses resulting from events such as sickness, unemployment, accidents, etc.

25. It does not cover current transfers between households, which consist of all current transfers in cash or in kind made, or received, by resident households to, or from, other resident or non-resident households.

26. It does not cover fines and penalties. They are imposed on institutional units by courts of law or quasi-judicial bodies and treated as compulsory current transfers. Also not covered are fines and penalties imposed by tax authorities for the evasion or late payment of taxes, which cannot usually be distinguished from the taxes themselves.

27. It does not cover lotteries and gambling; neither the payment of the service charge to the unit organising the lottery or gambling, nor the residual current transfer that is paid out to the winners (although according to ESA 4.135 the service charge is included in final consumption expenditure).

B. DEFINITION OF PRICE

28. At the time of purchase, the purchaser's price is the price for the products the purchaser actually pays; including any taxes less subsidies on the products; after deductions for discounts for bulk or off-peak-purchases from standard prices or charges; excluding interest or services charges added under credit arrangements; excluding any extra charges incurred as a result of failing to pay within the period stated at the time the purchases were made.

29. Goods and services for individual consumption ('individual goods and services`) are acquired by a household and used to satisfy the needs and wants of members of that household. Individual goods and services have the following characteristics:

(a) it must be possible to observe and record the acquisition of the good or services by an individual household or member thereof and also the time at which it took place;

(b) the household must have agreed to the provision of the good or service and take whatever action is necessary to make it possible, for example by attending a school or clinic;

(c) the good or service must be such that its acquisition by one household or person, or possibly by a small, restricted group of persons, precludes its acquisition by other households or persons.

All household final consumption expenditure is individual. By convention, all goods and services provided by NPISHs are treated as individual.

By convention, all government final consumption expenditure on education, health, social security and welfare, sport and recreation, and culture should be treated as expenditure on individual consumption services except for expenditure on general administration, regulation, research, etc. In addition, expenditure on the provision of housing, the collection of household refuse, and the operation of transport system should also be treated as individual. The collective consumption expenditure is the remainder of the government final consumption expenditure. It consists in particular of management and regulation of society, the provision of security and defence, the maintenance of law and order, legislation and regulation, the maintenance of public health, the protection of the environment, research and development, and the infrastructure and economic development.