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 dissemination of sub-indices of the HICP (No. XX/96) (“Draft Regulation”) (CON/96/11)
Date: 1996-08-29
Institutions: European Monetary Institute
Subjects: combined transport, consumer price, goods and services, harmonisation of prices, housing, insurance, motor car, price index, ticket

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 dissemination of sub-indices 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-indices 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 the

requirements  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  for

national  HICPs  and  for  MU  aggregates  are  needed  for  the  analysis  of  specific  price

developments  in  certain  index  categories  and  for  the  compilation  of  additional,  analytically

orientated aggregates (e.g. for a distinction between traded versus non traded items). Subject to

the remarks expressed below, the Draft Regulation 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 disseminated from January 1997. For the year 1996, the Draft

Regulation  stipulates  in  accordance  with  the  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 regard

to 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  quality  and  is  consistent  with  the  data  used  for

1997.  This  is  important,  because  these  data  will  be  used  for  the  formal  assessment  of

convergence for the year 1997 which will have to take account of the HICP change  for  1997

against  the  year  1996.  In  this  light  it  will  be  important,  in  addition,  to  give  consideration  to

publishing as many sub-indices as possible for 1996, with appropriate quality warnings.

5. 

 a.

Regarding specific sub-indices, the EMI notes the following points:

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  following  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 consumption

0.4.4.3A Water supply where consumers pay according to consumption

0.4.4.4

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. Moreover, the single sub-categories are often

subject  to  particular  and  significant  price  movements,  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  combined  sub-category  (see  Annex  II  of  the  Draft

Regulation).  The  rationale  appears  to  be  that  -  under  certain  assumptions  -  both  alternatives

lead 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  resulting  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 cars2 than the second alternative3.

Possible  effects  on  the  comparability  of  the  results  should  be  monitored  by  the  Commission

(Eurostat) and further harmonisation measures taken if necessary. Moreover, in a longer-term

perspective,  the  introduction  of  separate  categories  for  new  and  used  cars  following  a  fully

harmonised procedure would be desirable.

 c.

Category  07.3.6A  (‘Combined  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  risk  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  this

proposal,  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 comparable. 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 consumer 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