17th July 1996
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 giving
measures on initial coverage, treatment of newly significant goods and services, minimum
standards for procedures of quality adjustment, minimum standards for prices, price indices
for elementary aggregates and minimum standard for sampling (No XX/96) (“Draft
Regulation”).
CON/96/06
1. The present consultation was initiated on 8th July 1996 by the Commission of the European
Communities which, for this purpose, transmitted to the EMI document [SG(96)D/165229]containing the Draft Regulation.
 
2. The Draft Regulation is a consolidation of si x draft regulations. The EMI gave its opinion on
four of these on 15th February 1996 (CON/96/01) . The following opinion thus refers to the two
new parts ‘treatment of newly significant goods and services’ (part A) and ‘minimum standards
for sampling’ (part B) only.
 
3. The EMI considers these two new parts of the Draft Regulation to be important initial steps
towards harmonised indices of consumer prices and welcomes this initiative.
 
4. The EMI considers that the consultation obligation provided for by Article 105(4) combined
with Article 109f(8) of the Treaty and, more speci fically in this case, by Article 5.3 of the
Council Regulation on HICP, is an essential tool which enables the EMI as a main user offuture HICPs and as predecessor of the ECB to put forward its position on the envisaged
harmonisation measures. Given the procedure provided for in Article 14 of the Council
Regulation on HICP, which enables the Commissi on to adopt the measures envisaged only if
they are in accordance with the opinion of th e Statistical Programme Committee (SPC), it is
highly desirable, in the opinion of the EMI, that  the latter is formally consulted well in advance
of the corresponding meeting of the SPC. A consultation at a later stage much reduces theeffectiveness of the EMI’s opinion.
 
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 A. Treatment of newly significant goods and services
5. The objective of Article 4 of the Draft Regulati on is to ensure that Member States follow
comparable practices for including newly sign ificant goods and services (“new goods”) in
harmonised indices of consumer pr ices (HICPs). Present practices of Member States are likely
not to meet the comparability requirement of Article 4 of the above Council Regulation.
 
6. The EMI welcomes the fact that ‘new goods ’ are subject to a Commission draft Regulation,
since their treatment may not only be a sour ce of non-comparability of HICPs, but also a
potential source of bias in the indices, if new goods are not captured in a timely manner.
Whenever the price development of new goods differs from that of the overall index, the
practice followed for their inclusion is relevant  for the reliability and comparability of HICPs.
 
7. Article 4 of the Draft Regulation requires all Member States to systematically  seek to identify
new goods, to check the domestic importance of t hose reported to be newly significant in other
Member States and to include a new good when it exceeds a given share on expenditurescovered by the HICP within a specified time. Th ese rules appear to be appropriate to improve
HICPs.
 
8. The background against which the Draft Regulation will be implemented differs considerably
between Member States, mainly due to the clos e link between the inclusion of new goods and
the present frequency at which the weighting stru cture of the index is updated. For the majority
of Member States, which apply ‘fixed’ index weights over several years, this requires the
resolution of two basic questions. First, sta tistical information on the current consumption
pattern is needed for the decision on the sign ificance of a new good. This information will not
be available from the usual sources for the i ndex weights, if these are collected in longer
intervals only. Second, the frequent change of i ndex weights as a consequence of the inclusion
of new goods is not foreseen in the concept of  a fixed weight index. The Draft Regulation takes
the latter into account by leaving the decision on an explicit  update of the index weights to the
Member States. Member States applying ‘fix ed weights’ are allowed to introduce new goods
within a lowest index level categ ory without changing the weight of this category. Though this
rule does not lead to full comparability betw een the national HICPs, the EMI supports this
approach, since this Regulation must neither challenge the existing fixed weight indices nor
prejudge the harmonisation of the frequency for regularly updating the weighting structure ofHICPs. However, this points to the importance of the frequency of the regular updating applied
in the Member States. Further work is needed soon both to examine and to evaluate available
options for their harmonisation, w ith a view to ensuring that updating occurs on a sufficiently
timely basis across all Member States.
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 B. Minimum standards for sampling
9. The objective of Article 8 of the Draft Regulati on is to ensure sufficiently reliable price
sampling for HICPs for the purpose of interna tional comparison and to provide information
from which to set minimum standards for samp ling. Present sample design across Member
States is likely to fail the comparability requirement of Article 4 of the above CouncilRegulation.
 
10. Both the HICPs and the national CPIs will benef it from efforts at EU level to evaluate and
improve the reliability of consumer price sta tistics. Moreover, improving the reliability of
samples can benefit the cost efficiency of cons umer price statistics, if sample design can be
improved by reallocating resources without increasing the overall sample size.
 
11. The EMI welcomes the fact that this issue ha s been given higher priority than previously
planned due to its close links to other important  issues relevant for the harmonisation of CPIs
(e.g. ‘coverage’ and ‘monthly price collection’) and acknowledges Article 8 and 9(f) as a first
measure to identify the extent of non-compar ability and to improve reliability of HICPs.
 
12. Measures aiming at improving the reliability of HICP sampling procedures have to balance the
different requirements resulting from the main uses of HICPs. First, for the purpose of
assessing convergence, a sufficient level of re liability of the national all item HICPs for each of
the 15 Member States has highest priority. Second, for conducting a future single monetary
policy, the reliability of the Monetary Union area-wide HICP will gain importance. Though
these two main uses of HICPs do not lead to one unique, optimal sample design, sufficiently
reliable HICPs for all 15 Member States as they are required for assessing convergence willprovide a good basis for a reliable area-wide Monetary Union HICP. The Draft Regulation
takes this into account by giving priority to the 15 national all item HICPs.
 
13. Moreover, the EMI supports the fact that the Dr aft Regulation requires sufficiently reliable sub-
indices for each category of HICPs, taking into  account the weight of the category. Reliable
sub-indices are an indispensa ble precondition for the analys is of price developments.
 
14. At the same time, the statistical evaluation of the reliability of consumer price indices is for
most compilers of CPIs a largely new field. Th erefore, the Draft Regulation at this juncture
neither stipulates any detailed statistical standards nor requires any immediate sample
adjustments from Member States. Instead, the Commission (Eurostat) will request from
Member States information sufficient to eval uate reliability and to derive proposals for
minimum standards for sampling for inclusion in  the ‘Review’-Report of HICPs required under
Article 15  of the above Council Regulation due in autumn 1997. Given the complexity of theissue and the lack of experience with it, the EM I accepts this staged approach as a reasonable
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way to improve reliability. However, as a consequence, the ‘Review’ of HICPs gains particular
importance and the EMI expects from it satisfactory information on present sample design andconcrete proposals for their improvement which will then have to be implemented.