Opinion of the European Monetary Institute on a consultation from the Council of the European Union under Article 109 f (6) of the Treaty establishing the European Community as amended by the Treaty on European Union (“the Treaty”) and Article 5.3 of the EMI; on a Draft Proposal for a Council Regulation concerning Harmonised Consumer Price Indices (COM(94) 674 final) (“the Draft Regulation”) (CON/95/1)
Date: 1995-03-31
Institutions: European Monetary Institute
Subjects: consumer price, economic statistics, harmonisation of prices, price index, statistical method

EUROPEAN MONETARY INSTITUTE

31st March 1995

OPINION OF THE EUROPEAN MONETARY INSTITUTE

on  a  consultation  from  the  Council  of  the  European  Union  under  Article  109  f  (6)  of  the  Treaty

establishing  the  European  Community  as  amended  by  the  Treaty  on  European  Union  (“the  Treaty”)

and Article 5.3 of the EMI;

on  a  Draft  Proposal  for  a  Council  Regulation  concerning  Harmonised  Consumer  Price  Indices

(COM(94) 674 final) (“the Draft Regulation”).

CON/95/1

1.  The  present  consultation  was  initiated  on  9th January  1995  by  the  Council  of  the  European  Union

which, for this purpose, transmitted to the EMI document “COM(94) 674 final” containing the Draft

Regulation.

2.  The  principal  objective  of  the  Draft  Regulation  is  to  establish  Community  statistics  on  consumer

prices  whereby  each  Member  State  produces  comparable  harmonised  consumer  price  indices

(“HCPIs”)  and  the  Commission  (Eurostat)  produces,  based  on  the  HCPIs,  an  index  for  the

Community (“ECPI”) and, as long as derogations under Article  109k of the Treaty are in effect, an

index for the Monetary Union (“MUCPI”).

3.  For  the  EMI,  this  indicator  is  very  important  and  the  initiative  of  the  Commission  is  helpful  both  in

substance and, given the Treaty timetable, in form. Specifically:

First,  as  the  primary  objective  of  the  ESCB  is  to  maintain  price  stability,  it  is  necessary  to  have

common  measures  of  price  performance.  The  ECPI,  or  the  MUCPI,  will  be  a  very  important

indicator of inflationary pressures, and will be used by the ECB in conjunction with other price and

cost statistics at Monetary Union level.

Second,  Article   109j  of  the  Treaty  states  that  “the  Commission  and  the  EMI  shall  report  on

progress  made  in  the  fulfilment  by  the  member  states  of  their  obligations  regarding  the

achievement  of  economic  and  monetary  union”.  This  includes,  in  particular,  assessing

convergence  towards  price  stability  measured  by  means  of  the  consumer  price  index  on  a

comparable basis in accordance with the Treaty’s Protocol on the convergence criteria.

Third,  in  the  light  of  the  timetable  provided  for  in  the  Treaty,  there  is  urgency  involved  in

harmonising the measurement of consumer prices. The EMI therefore encourages the Commission

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and  the  Member  States  to  take  any  opportunity  to  further  advance  deadlines  defined  in  Articles  9

and 10 of the Draft Regulation.

Fourth,  whilst  some  could  cast  doubts  on  the  appropriateness  of  a  Council  Regulation  as  much

uncertainty  surrounds  the  final  conceptual  results  of  the  staged  harmonisation  process,  the  EMI

considers that this argument does not outweigh the need for an act of the Council in the light of the

urgency and the importance of the matter.

Fifth, a high level of frequency and timeliness is provided for in the regular production, transmission

and publication of results. This is an essential requirement for policy-making.

Finally, the Draft Regulation provides for appropriate co-operation with the EMI during the various

phases  envisaged  therein,  and  also  in  its  implementation  and  enhancement.  The  preamble  also

confirms that the opinion of the EMI has been sought.

4. The “staged process” envisaged in the Draft Regulation aims at achieving fully harmonised statistics

by January 1998. This is after the EMI and the Commission will have reported in 1996   on progress

made  in  the  fulfilment  by  the  member  states  of  their  obligations  regarding  the  achievement  of

economic and monetary union and after the first possible start date for monetary union. Prior to the

production  of  fully  harmonised  consumer  price  indices,  partially  harmonised  estimates  will  be

compiled. The "staged process" for achieving fully harmonised statistics is probably the only possible

one  and  is  appropriate  in  the  light  of  the  prevailing  time  constraints.  However,  the  EMI  would

express  its  concern  that  credibility  difficulties  might  arise  regarding  the  use  of  the  partially

harmonised data in the context of the assessment of progress made in the fulfilment by the Member

States  of  their  obligations  regarding  the  achievement  of  economic  and  monetary  union  unless  it  is

clear that they are on a path towards, and close to, the fully harmonised data. Accordingly, the EMI

strongly encourages the Commission and the Member States to make rapid and significant progress,

not only with regard to the partial harmonisation, but also in the full harmonisation of consumer price

indices, limiting the number of stages to the strict necessary minimum.

5. With regard to the text of the Draft Regulation, the EMI suggests the following amendments.

(A)  Since  the  primary  objective  of  the  ESCB  will  be  to  maintain  price  stability,  and  since  the

MUCPI will be important for the effective execution of this duty, the EMI would suggest the

following is inserted in the preamble as the fourth “whereas”:

“Whereas  Article  105(1)  of  the  Treaty  and  Article  2  of  its  Statute  state  that  the  primary

objective of the ESCB shall be to maintain price stability.”

(B)  The  Draft  Regulation  might  be  understood  to  mean  that  only  narrowly  defined  HCPIs  totally

excluding  imputed  prices  should  be  aimed  at.  Monetary  policy  purposes  as  well  as

comparability may also require broader measures of consumer price inflation. Therefore, whilst

a  narrow  concept  is  almost  certainly  the  most  appropriate  in  the  short  term  due  to  time

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pressure, it would be important that the Draft Regulation is not construed to preclude the long

term  possibility  that  harmonised  imputed  prices  may  be  allowed  as  part  of  future

enhancements. To this effect, the EMI would propose:

(a) Insert in the fourth “whereas” the following (proposed insertion underlined):

“...  as  well  as  purchases  by  consumers,  and  whereas  it  is  recognised  that  a  range  of

statistics,  of  which  consumer  price  indices,  including  where  appropiate  imputed  prices

for enhanced coverage and comparability, is relevant ...”

(b) Introduce a new sentence in Article 2 as follows:

“...,  and  imputed  prices  which  might  be  deemed  necessary  to  ensure  both  complete

coverage and comparability”.

(C)  Whilst  the  EMI  fully  agrees  that  it  is  the  responsibility  of  the  Community  to  create  common

statistical  standards  for  consumer  price  indices,  and  this  Draft  Regulation  is  the  appropiate

vehicle for that purpose, it should be clearly stated that the proposed regulation does not affect

the  statistical  tasks  vested  on  the  ECB  by  Article  5  of  the  ESCB  Statute.  To  that  end,  it  is

suggested that:

(a) The following paragraph is included in the Preamble:

“Whereas this Regulation preserves the provisions of Article 5 of the Protocol on the

Statute  of  the  European  System  of  Central  Banks  and  of  the  European  Central

Bank”.

(b) A third paragraph as follows is included in Article 13:

“(3)  Implementation  measures  shall  be  consistent  with  measures  eventually  adopted

under Article 5 of the Protocol on on the Statute of the European System of Central

Banks and of the European Central Bank”.

(D) With regard to Article 4 of the Draft Regulation - (“Timetable and Derogations therefrom”) -

the  EMI  expresses  its  concern  about  the  fact  that,  in  its  present  form,  the  reader  might

conclude that the Community, contrary to the Treaty provisions, does not envisage the start of

Stage Three of EMU until after January 1998. To avoid this interpretation, it is suggested that:

(a) The following paragraph is included in the Preamble as follows:

“Whereas  the  complexity  of  the  measures  to  be  adopted  by  the  Commission  and  the

Member States to reach a fully harmonised Consumer Price Index requires a staged

process of implementation which extends beyond the first possible dates foreseen for

monetary union by the Treaty.”

(b) In Article 4, paragraph (2), after  “the European Monetary Institute” the words  “or the

European Central Bank, as the case may be,...” are added.

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(E) With regard to the same Article  4 of the Draft Regulation the EMI expresses its concern that

the  exclusions  listed  under  Stage  1  should  not  be  interpreted  as  being  the  only  adjustments

which  may  be  made  to  the  national  price  indices.  In  the  light  of  the  considerations  in

paragraph  4  above,  it  is  important  not  to  preclude  other  adjustments  improving  comparability,

such as the inclusion of certain items, as far as existing data or new data collected at very low

cost (e.g. on monopoly prices) would permit this. The EMI therefore suggests:

(a) The last sentence under the heading “Stage 1” be amended as follows (proposed insertion

underlined):

“These indices shall be based wholly on data underlying existing national price indices,

but adjusted in particular as follows:...”

(b) At the end of paragraph (a) of Article 4 the following sentence is introduced:

“ The above exclusions shall  be reviewed and reintroduced as and when a comparable

method of price measurement is agreed”.

(F) With regard to Article 8, the EMI would recommend that the monthly frequency for producing

consumer price indices referred to in paragraph (1) be applicable not only to HCPI but also to

the indices to which Article 4(1)(a)  - Stage 1 indices - refers. To that end, it is suggested that

such paragraph (1) of Article 8 reads as follows:

“(1) Consumer price indices referred to in Article 4 shall be compiled each month.”

(G)  With  regard  to  Article   13  of  the  Draft  Regulation  (“Consultation”),  the  EMI  considers  it

advisable  to  change  the  heading,  in  order  to  reflect  more  adequately  its  content  and  make  it

more  consistent  with  the  important  provision  laid  down  in  Article  4  (1)(c),  and  name  that

Article “Implementation measures”.

(H) With regard to the same Article 13, the EMI also considers it advisable to constantly monitor,

preserve  and  enhance  the  relevance  and  reliability  of  the  HCPI  against  the  background  of

changing  economic  and  statistical  factors.  Whilst  the  Article  mentions  adapting  to  economic

and  technical  developments,  formally  it  may  be  more  appropriate  for  the  Draft  Regulation  to

merely state the requirement. In view of this, the following might be deleted from Article  13.1:

“, including measures for adaptation to economic and technical developments,”

and replaced with:

“and for preserving and enhancing the reliability and relevance of the HCPI”

(I)    The  procedure  for  adoption  of  implementation  measures  might  be  clarified  if  the  consultation

procedure laid down in Article 14 in fact referred to the Statistical Programme Committee; the

present language of Article 13 (1) might be amended to read as follows:

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“(1)  The  measures  for  implementing  the  present  Regulation  and  for  preserving  and

enhancing  the  reliability  and  relevance  of  the  HCPI  shall  be  laid  down  by  the

Commission  (Eurostat)  following  consultation  with  Euratom,  with  the  European

Monetary Institute or the European Central Bank as the case may be, and with the

Statistical  Programme  Committee  (hereinafter  referred  to  as  the  Committee).  The

consultation with the Committee shall take place in accordance with the procedure

specified in Article 14.”

6.  Subject  to  the  reservations  mentioned  in  paragraph  4  and  5  above,  the  EMI  considers  the  Draft

Regulation  to  be  conducive  towards  the  execution  of  its  tasks  and  those  of  the  ECB.  Given  the

importance of harmonised consumer price statistics, the EMI welcomes this initiative.

7.  The  present  Opinion  is  circumscribed  to  the  draft  regulation  as  it  appears  in  the  document

“COM(94) 674 final”. Because of its importance to the EMI, amended versions of that document

should be submitted to the EMI for further opinion.