OPINION OF THE EUROPEAN MONETARY INSTITUTE 
on a consultation from the Commission of the European Communities under Article 105(4) and
109 f (8) of the Treaty and Article 5(3) of Council Regulation No. 2494/ 95 of 23rd October 1995;
on a draft Commission Regulation concerning Harmonised Indices of Consumer Prices -
Transmission and disse mination of sub-i ndices of the HICP (No. XX/96) (“Draft Regulation”).
CON/96/11
1. By letter of 31st July 19961 the Commission consulted the EMI on a draft Commission
Regulation concerning Harmonised Indices of Consumer Prices - Transmission and
dissemination of sub-i ndices of the HICP.
 
2. The objective of the Draft Regulation is to establish the sub-indices of the HICPs which are to
be produced by the Member States and transmitted to and disseminated by the Commission(Eurostat) in accordance with Articles 9 and 11 of the above Council Regulation.
 
3. The EMI warmly welcomes the fact that the Draft Regulation provides a detailed level of
disaggregation for the HICPs. For the EMI, as a future main user and taking into account therequirements of the future ECB, a sufficient  and harmonised breakdown of the data is an
indispensable condition for its effective use, both with a view to assessing sustainable
convergence and to conducting a future single monetary policy. Detailed sub-indices fornational HICPs and for MU aggregates are needed for the analysis of specific pricedevelopments in certain index categories and for the compilation of additional, analytically
orientated aggregates (e.g. for a distinction be tween traded versus non tr aded items). Subject to
the remarks expressed below, the Draft Regula tion meets these requirements, since it ensures
the flexibility needed  for these tasks.
 
4. In accordance with Article 5.1 of the Council Regulation, the Draft Regulation requires
sub-indices of the HICPs to be disseminate d from January 1997. For the year 1996, the Draft
Regulation stipulates in accordance with th e Council Regulation no such legal obligation,
including on the grounds that the quality of sub- indices for 1996 would not always be sufficient
for their dissemination, since, for example, the collection of data for new sub-categories will be
set up no earlier than by the end of 1996. Though the EMI accepts this reservation with regardto the legal obligation  to publish single sub-indices for 1996, it underlines that Article 5(1) of
the Council Regulation requires the calculation of “estimates of price changes” for this year.
                                                     
1 Document [D(96) 35486]
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This requires that the data used for 1996 - the aggregated index as well as all sub-indices used
to derive the aggregated results - has a high qua lity and is consistent with the data used for
1997. This is important, because these data will be used for the formal assessment ofconvergence for the year 1997 which will have to take account of the HICP change for 1997against the year 1996. In this light it will be important, in addition, to give consideration topublishing as many sub-indices as possibl e for 1996, with appropriate quality warnings.
 
5. Regarding specific sub-indices, th e EMI notes the following points:
 a. Category 04.4A (‘Other services relating to the dwelling’)  does not provide any breakdown,
though this was envisaged in previous drafts  and not basically questioned by the Member
States. The EMI suggests to re-include the fo llowing defined sub-categories (or meaningful
alternatives):
 04.4.1A Refuse collection where consumers pay according to consumption
04.4.2A Sewerage services where consumers pay according to consumption0.4.4.3A Water supply where consumers pay according to consumption0.4.4.4 Other services relating to the dwelling
 Indeed, these services are very heterogeneous, so that the numbers for the aggregate category need to
be supplemented by a corresponding breakdown. Mo reover, the single sub-categories are often
subject to particular and significant price move ments, not to mention the fact that they are
important for households.
 b. Category 07.1.1 (‘New and second-hand motor cars’)  provides two alternative methods for
deriving the relevant weights for this comb ined sub-category (see Annex II of the Draft
Regulation). The rationale appears to be that - under certain assumptions - both alternativeslead to the same sum of weights for new and used cars and that thus the choice can be left to the
Member States. However, even if the resu lting overall weight were identical, the two
alternatives divide the weight differently between  new and used cars. The first alternative leads
to a lower weight for new cars and a higher weight for used cars
2 than the second alternative3.
Possible effects on the comparability of the re sults should be monitored by the Commission
(Eurostat) and further harmonisation measures ta ken if necessary. Moreover, in a longer-term
perspective, the introduction of separate categories for new and used cars following a fullyharmonised procedure would be desirable.
 c. Category 07.3.6A (‘Com bined tickets’)  was introduced in order to include tickets covering
more than one mode of transport, e.g. combined tickets for the use of local transport by bus and
by underground. This might imply an increased ri sk of lack of comparable classification
                                                     
2 Weight for new cars = purchase of new cars minus sales of used cars to second-hand dealers (trade-ins);
weight for used cars = purchase of used cars including those purchased from the business sector.
3   Weight for new cars = purchase of new cars;
weight for used cars = trade margin of second-hand car dealers plus purchases of used cars from the business sector.
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between Member States. The Commission (Eurostat)  should monitor the future practices in this
sub-index group.
 d. Category 12.4A (‘Insurance’ ) provides a harmonised approach for the calculation of a sub-
index for insurance services (see Annex II of the Draft Regulation). The EMI welcomes thisproposal, particularly since the re-inclusion of insurance is one of the major extensions of
coverage of initial HICPs compared with the Interim index (IICP) and the methods currently
applied for national CPIs are by no means compar able. Further conceptual work regarding the
price indicator used for insurance (net premiums  versus gross premiums) is required and should
start as soon as possible.
 
6. Subject to the remarks mentioned, the EMI considers the Draft Regulation to be an important
step towards harmonised indices of consum er prices and welcomes this initiative.
 
7. The EMI agrees that this opinion may be made  public by the competent authorities at their
discretion.
 
 29th August 1996