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)
Date: 1996-07-17
Institutions: European Monetary Institute
Subjects: consumer price, economic statistics, goods and services, harmonisation of prices, price index, sampling, single monetary policy

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 six 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  specifically  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  of

future  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 Commission to adopt  the  measures  envisaged  only  if

they  are  in  accordance  with  the  opinion  of  the  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  the

effectiveness of the EMI’s opinion.

 
 
 
 
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 A.

5. 

Treatment of newly significant goods and services

The  objective  of  Article  4  of  the  Draft  Regulation  is  to  ensure  that  Member  States  follow

comparable  practices  for  including  newly  significant  goods  and  services  (“new  goods”)  in

harmonised indices of consumer prices (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  source  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 those reported to be newly significant in other

Member  States  and  to  include  a  new  good  when  it  exceeds  a  given  share  on  expenditures

covered by the HICP within a specified time. These 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 close link between the inclusion of new goods and

the present frequency at which the weighting structure 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,  statistical  information  on  the  current  consumption

pattern is needed for the decision on the significance of a new good. This information will not

be  available  from  the  usual  sources  for  the  index  weights,  if  these  are  collected  in  longer

intervals only. Second, the frequent change of index 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  ‘fixed  weights’  are  allowed  to  introduce  new  goods

within a lowest index level category without changing the weight of this category. Though this

rule  does  not  lead  to  full  comparability  between  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 of

HICPs. 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, with a view to ensuring that updating occurs on a sufficiently

timely basis across all Member States.

 
 
 
 B. Minimum standards for sampling

- 3 -

9. 

The  objective  of  Article  8  of  the  Draft  Regulation  is  to  ensure  sufficiently  reliable  price

sampling  for  HICPs  for  the  purpose  of  international  comparison  and  to  provide  information

from  which  to  set  minimum  standards  for  sampling.  Present  sample  design  across  Member

States  is  likely  to  fail  the  comparability  requirement  of  Article  4  of  the  above  Council

Regulation.

10.  Both  the  HICPs  and  the  national  CPIs  will  benefit  from  efforts  at  EU  level  to  evaluate  and

improve  the  reliability  of  consumer  price  statistics.  Moreover,  improving  the  reliability  of

samples  can  benefit  the  cost  efficiency  of  consumer  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  has  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-comparability 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 reliability 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  will

provide  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 Draft Regulation requires sufficiently reliable sub-

indices  for  each  category  of  HICPs,  taking  into  account  the  weight  of  the  category.  Reliable

sub-indices are an indispensable precondition for the analysis 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.  Therefore,  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  evaluate  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 the

issue and the lack of experience with it, the EMI accepts this staged approach as a reasonable

 
 
 
 
 
- 4 -

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 and

concrete proposals for their improvement which will then have to be implemented.