Report from the Commission to the Council on harmonization of consumer price indices in the European Union
Date: 1998-02-27
Institutions: European Commission
Subjects: Economic and Monetary Union, consumer price, economic convergence, harmonisation of prices, price index

COMMISSION OF THE EUROPEAN COMMUNITIES 

•ix 

TV 

Brussels, 27.02.1998 
COM(1998) 104 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 

ON HARMONIZATION OF CONSUMER PRICE  INDICES 
IN THE EUROPEAN  UNION 

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TABLE OF CONTENTS 

Table  of Contents 

Abbreviations  used  in the Text 

List  of Tables 

Executive  Summary 

1. 

Introduction 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

Costs 

Background 

; 

Comparability  and  main  differences 

Approach  towards  establishing  rules for  Commission  Regulations 

Implementation  of the  Council  Regulation 

6.1.  Stage  1 of the harmonization  process: January  1996 

6.2.  Stage  2  of the  harmonization  process: January  1997...: 

6.2.1. 

Initial coverage 

6.2.2.  Newly  significant  goods  and  services 

6.2.3.  Minimum  standards  for  procedures  of quality  adjustment 

6.2.4.  Minimum  standards  for  prices 

6.2.5. 

Price  indices  for  elementary  aggregates 

6.2.6.  Minimum  standards  for  sampling 

6.2.7. 

Transmission  and  dissemination  of sub-indices  of the HICP 

6.2.8.  Common  reference  periods 

6.3.  The  EICP  and  the MUICP 

6.4.  HICP  data  disseminated  by the  Commission  (Eurostat) 

Derogations  from  the  provisions  of the HICP  Council  Regulation 

Further  steps  towards  harmonization 

8.1.  Extended  coverage 

8.2.  Minimum  standards  for  the  quality  of HICP  weights 

8.3.  Geographic  and  population  coverage 

8.4.  Comprehensive  Definition  ofHICPs 

". 

9. 

Enlargement  of the EU 

10.  The  HICP  - a comparable  measure  of Consumer  Price  inflation 

10.1.  Improved  comparability 

10.2.  Comparability  and  coverage 

10.3.  Differences  between  CPIs  and  HICPs 

t>age 2d 

2 

4 

6 

7 

9 

9 

10 

10 

11 

12 

12 

13 

14 

14 

15 

16 

17 

17 

18 

19 

19 

20 

21 

22 

22 

24 

24 

25 

26 

27 

27 

28 

29 

11.  Reactions from users, media, and Member States 

11.1.  Opinion of the European Monetary Institute (EMI) 

30 

30 

11.2.  Opinion of the Directorate General for Economic and Financial Affairs of the 

European Commission (DGII) 

11.3.  Summary opinion of Member States.. 

12.  Compliance and quality control 

12.1.  Specific changes made by Member States 

12.2.  Coverage 

12.2.1.  Interim indices launched 29 February  1996 

12.2.2.  HICPs launched 7 March  1997 

12.2.3.  HICP versus CPI coverage 

12.3.  Weighting 

12.3.1.  Quality of weights 

12.3.2.  Weight reference period 

12.4.  Sub-index weights 

, 

12.5.  Newly significant  goods and services 

12.6.  Elementary aggregate formula 

12.7.  Quality adjustment 

12.8.  Sample design and maintenance 

12.8.1.  Sampling and comparability 

12.8.2.  Statement of the target sample and maintenance 

31 

31 

32 

33 

34 

34 

36 

37 

40 

40 

40 

41 

42 

.43 

45 

48 

48 

51 

13.  Operation of the Procedure under Article  14 of Council Regulation (EC) No  2494/95 
54 

("Comitology") 

Annex 

:..... 

.56 

page 3< 

ABBREVIATIONS USED IN THE TEXT 

A 

B 

BUL 

COICOP 

: 

Austria 

Belgium 

Bulgaria 

Classification  Of Individual Consumption  by Purpose 

COICOP/HICP 

COICOP adapted for the needs of HICPs 

CPI 

CPIs 

CYP 

CZE 

D 

DGII 

DK 

E 

EC 

ECU 

EICP 

EL 

EMI 

Consumer Price Index 

Consumer Price Indices 

Cyprus 

Czech Republic 

Germany 

Directorate General for Economic Affairs  of the European  Commission 

Denmark 

Spain 

European  Community 

European  Currency Unit 

European Index of Consumer Prices 

Greece 

European Monetary Institute 

ESA  1995 

European  System of Accounts of  1995 

EST 

EU 

F 

FIN 

Estonia 

European Union 

France 

Finland 

HFMCE 

Household  final  monetary  consumption  expenditure 

HICP 

HICPs 

HUN 

I 

IRL 

IS 

L 

LTU 

LVA 

Harmonized  Index of Consumer Prices 

Harmonized  Indices of Consumer Prices 

Hungary 

Italy 

Ireland 

Iceland 

Luxembourg 

Lithuania 

Latvia 

Member  States 

for the purposes of this report  refers  to the EU Member  States (B, DK, 
D, EL, E, F, IRL, I, L, NL, A, P, FIN, S, UK) plus N and IS 

page 44V* 

MU 

MUICP 

N 

NL 

OECD 

OJ 

P 

POL 

ROM 

S 

SPC 

SVK 

SVN 

TEU 

UK 

Monetary Union 

Monetary Union Index of Consumer Prices 

Norway 

Netherlands 

Organisation for Economie Co-operation and Development 

Officiai Journal of the European Communities 

Portugal 

Poland 

Romania 

Sweden 

Statistical Programme Committee 

Slovak Republic 

Slovenia 

Treaty on European Union 

United Kingdom 

UN-ECE 

Economic Commission for Europe of the United Nations 

page 5J 

LIST OF TABLES 

Table  1:  Overview of available HICP data 

Table 2:  Assessment of compliance with HICP requirements in the Candidate Countries: 

Initial coverage 

Table 3:  Expenditure excluded from national CPIs when computing the interim indices -

approximate weights per 1000 (January 1996) 

Table 4:  Categories which have been added to national CPIs when computing the interim 

indices 

Table 5:  Categories which have been excluded from national CPIs when computing the 

interim indices 

Table 6: 

Sub-indices introduced for the compilation of the HICPs - approximate weights per 
1000 (Annual  1996) 

Table 7:  HFMCE covered by the HICP compared to national CPI coverage - approximate 

weights per 1000 (Annual  1996) 

Table 8:  HICP weight reference periods and update frequencies in 1997 

Table 9:  Newly significant goods and services since January 1997 

Table  10:  Computation of elementary aggregates in the HICP 

Table  11 :  Sampling of geographical localities and outlets in Member States 

Table  12:  Sampling of items and varieties in Member States 

Table  13:  Monthly and less frequent price observation for the HICP as specified in the target 

samples of Member States 

Table  14:  Total number of items and price observations for compiling the HICP as specified 

in the target samples of Member States 

Table  15:  Sub-index weights of the HICP as part per 1000 (Annual  1996) 

page 

EXECUTIVE  SUMMARY 

As  required  by  Council  Regulation  (EC)  No  2494/95  and  with  the  co-operation  of  Member 
States  "Harmonized  Indices  of  Consumer  Prices"  (HICPs)  for  each  Member  State  are  now 
produced  and  published  monthly  together  with  an  aggregated  index,  the  "European  Index  of 
Consumer  Prices" (EICP). These indices have been  accepted  by both  the  Commission  and  the 
European  Monetary  Institute  as  providing  satisfactory  measures  for  the  assessment  of 
convergence.  Although certain differences  in their constructions  remain  to be fully  harmonized 
considerable  progress  has  been  made  in  removing  differences  in  the  concepts,  methods  and 
practices  followed  by  Member  States  in  constructing  their  national  Consumer  Price  Indices 
(CPIs).  Those  indices  continue  to  be  published  in  most  cases  and  used  in  national  contexts. 
Their  construction  will reflect  improved  practices  developed  in the  harmonization  process  but 
their  use  for  international  comparisons  is  peripheral.  The  Commission  and  the  European 
Monetary Institute are looking for further  improvements in the quality and comparability  of the 
HICPs  for  their  use  in  monetary  policy  and  the  monitoring  of  inflation  in  the  Economic  and 
Monetary Union. 

The  HICPs  have  a  common  reference  base  1996,  common  coverage  of  consumer  goods  and 
services  and  a  common  classification  so  that  inflation  can  now  be  compared  for  around  100 
categories  of  expenditure.  The  new  indices  are  required  to  take  account  of  inflation  in  new 
goods and services, particularly those resulting from  technical innovation.  Important  sources of 
difference  in  the  basic  computational  procedures  have  been  removed.  These  relate  to  the 
representativity  of  the  monthly  collection  of  prices,  the  treatment  of  missing  observations, 
allowance  for  changes  in the  quality  of products  available for  pricing  and  to  the  formula  used 
to combine the prices observed to give an overall measure. 

Quality  adjustment  is  widely  accepted  among  experts  as  one  of  the  most,  if  not  the  most, 
intractable  problems  in  CPI  construction.  The  problem  is  not  widely  appreciated  and  many 
observers  share  the  mistaken  impression  that  no  allowances  are  made  for  improvements  that 
have occurred  in product  quality thus leading to an overstatement  of inflation.  In practice man;, 
different  adjustments  have been made as index compilers have attempted  to solve the problems 
in different  ways and these may, just  as likely, have resulted  in an  over  compensation  for  such 
improvements. As a result, this remains the most important  source of non-comparability  amor.: 
HICPs.  Short  term  their  comparability  has been  improved  by banning  one frequently  used  but 
inappropriate  procedure  for  treating  changing  product  quality.  Further  improvement  can  be 
expected  as  a  result  of  a  co-ordinated  programme  of  work  among  Member  States.  This  h.i-
already  thrown  much  light  on  specific  operational  issues  that  must  be  resolved  before 
comparable practices can be established. 

The  samples  of  prices  used  in  the  construction  of  HICPs  differ  widely  in  design  and  in  the 
methods  and  practices  followed.  This  gives  rise  to  concern  that  the  indices  may  be  non-
comparable  on  this  count.  It  is  however  not  possible  to  say  that  any  particular  HICP  i> 
unsatisfactory  as there  are  no  yardsticks  by which  to  make  such judgement.  The-Commission 
(Eurostat)  is working with Member  States on a programme  of research  designed  to  provide an 
empirical  assessment  of  different  sampling  methods  and  to  develop  measures  of  the  reliability 
of HICPs.  The  research  is  making  good  progress  but  is confronted  with  many  difficult  issues 
which have not  hitherto been addressed. Meanwhile, Member  States are required  to ensure that 
their  samples  are  representative  of all categories of expenditure  covered  by  the HICP  and  are 
maintained  at the level of January  1997. 

page 7] 

No  single  CPI or set  of CPIs should  be taken  as a model  for what HICPs  should  cover.  The 
coverage  of  the  HICPs  is  fairly  comprehensive  but  some  further  extension  is  desirable.  The 
incidence  of very different  institutional  arrangements  for  the  delivery  of  health  and  education 
has meant that it has not been possible to say at this stage how important this omission is in the 
provision  of  comparable  measures  of  inflation  as  it  affects  consumers.  Clearly  individual 
consumers  are  unaffected  when  total  costs  rise  if  any  payments  they  make  are  reimbursed. 
Other  desirable  extensions  to  coverage  are  social  protection  services  and  further  insurance 
services  which  are  not  so  far  included.  Harmonization  of  the  geographic  and  population 
coverage  is also being pursued as a matter of urgency.  Some Member  States have broadened 
their coverage from that of their CPIs to bring them into line with the majority but there remain 
questions over the coverage of tourist expenditure and institutional households. 

The HICPs cover owner occupiers' repairs and maintenance costs,  dwelling content insurance, 
refuse  collection,  sewerage  services,  water  supply,  and other  services  related  to  the  dwelling. 
Work will be undertaken to develop an appropriate measure for inclusion but at this time only 
a few  counties  have the  necessary  data.  The  omission  from  the  HICPs  of  imputed  rents  (the 
rent  paid  for  an equivalent  dwelling)  included  in some  national  CPIs  or  of  mortgage  interest 
payments included in other CPIs has been criticised but is justified  on the grounds that neither 
of these represents the impact of inflation on owners; the first is an opportunity cost rather than 
an actual cost and the latter is the cost of borrowing rather than consumption. 

page 8^ 

INTRODUCTION 

1. 
On 23 October  1995, the Council  of Ministers  adopted  a regulation1  setting the legal basis  for 
the establishment of a harmonized  methodology for  compiling consumer price indices (CPIs) in 
EU Member States. 

Council  Regulation  (EC)  No  2494/95  concerning  Harmonized  Indices  of  Consumer  Prices 
(HICPs)  laid  down  a  stepwise  approach  in  two  stages,  each  step  requiring  specific 
implementing  measures  which  were  and  will  be,  where  necessary,  legislated  in  the  form  of 
Commission Regulations. Regarding the process for  implementing HICPs  it should  be  stressed 
that  the  Council  Regulation  foresaw  a  procedure  with  the  Statistical  Programme  Committee 
(SPC) acting as Regulatory Committee. 

Within  this  framework,  rules  as  well  as  guidelines  or  non-obligatory  statements  of  good 
practice  have  been  drawn  up  in  collaboration  with  Member  States  for  the  construction  of 
HICPs.  To  date, two  Commission  Regulations2  (EC) No  1749/96  and  No  2214/96  have been 
adopted  by the Commission. Further  regulations  are currently  in various  stages  of  preparation. 
Furthermore,  a Community-wide  index3 based on the HICPs as well  as an index measuring the 
average inflation  rate  of the members of the Monetary  Union4  have been  defined.  In  doing  so, 
due regard  was and  will be paid  to  the primary  purpose  of the KICPs to  provide  comparisons 
of inflation  in the macro-economic  context. 

The production  of a consumer  price index is an elaborate  and  sensitive  operation.  Many of the 
necessary changes were agreed in lengthy discussions and required  substantial  preparation.  The 
calculation  of the HICP  has  in  some  cases  required  additional  processing  systems  in  order  to 
avoid  any  risk  of  confusion  with  the  existing  CPI.  The  HICP  Council  Regulation  and  the 
number  of specific  implementing  measures which have been legislated  or submitted  to the  SPC 
during  a  period  of  only  three  years,  provide  enough  evidence  for  the  difficulty  of  the  issues 
involved  in the compilation  of HICPs. 

2. 

COSTS 

The  additional  costs  the Member  States  incurred  in implementing  the  requirements  laid  down 
in  the  HICP  Council  Regulation,  and  specified  in  Commission  Regulations,  have  been 
recognised  by  the  Commission,  and  a  Commission  Decision  (C(96)  2452)  was  adopted  in 
September  1996  allocating  3  million  ECU  to  the  Member  States  over  ?. two-year  period  for 
this  purpose.  This  followed  earlier  disbursements  to  Member  States  amounting  to  670000 
ECU. 

Although  the Commission  (Eurostat)  took greatest  account  of cost-effectiveness  and made  full 
use of all possible budgetary  resources to finance  the HICP  project,  the funding  might  in some 
Member  States  not  have  covered 
the 
implementation  of the HICPs as required  in Article  13 of the HICP  Council Regulation. 

two-thirds  of  the  actual  additional  cost  for 

Council Regulation (EC) No 2494/95, OJ No L 257/1, 27.10.95 

OJ No L 229/3,  10. 9. 1996, and OJL 296/8, 21.11.1996 respectively 

European Index of Consumer Prices (EICP) 

Monetary Union Index of Consumer Prices (MUICP) 

: 

4 

page  9 jp 

3.  BACKGROUND 

Protocol No 6 that  develops Article  109 (j) (1) of the Treaty  on European  Union (TEU)  states 
that  "inflation  shall be  measured  by  means  of  a  consumer  price  index  on  a  comparable  basis, 
taking into  account  differences  in national  definitions."  This requirement  is being  met  through 
the implementation of HICPs which are as far as possible based on national CPIs. 

The  compilation  of  any  CPI  consists  of  collecting  and  processing  price  and  expenditure  data 
according  to  specified  concepts,  definitions,  methods  and  practices.  Concepts  relate  to  the 
essential aims of the CPI. The underlying conceptual basis of a CPI will usually be expressed in 
general terms (if it is expressed  at all). CPIs are sometimes in some Member  States referred  to 
as  "cost-of-living  indices"  or  as  "pure  price  indices".  The  latter  may  be  seen  as  a  general 
measure  of  consumer  price  inflation  whereas  the  purpose  of  the  former  might  be  for 
establishing  the  purchasing  power  of  incomes.  In  practice  there  are  significant  overlaps 
between the two concepts. 

Recognising that HICPs cannot measure all aspects of inflation  but only one of its components, 
the  preamble  to  the  HICP  Council  Regulation  includes  the  following  phrase:  "...  it  is 
recognised  that  inflation  is a phenomenon  manifesting  itself in all forms  of market  transactions 
including capital  purchases, government  purchases, payments to labour  as well as purchases by 
consumers  ...". Article 3 of the HICP Council Regulation  defines that the  "HICP shall be based 
on  the  prices  of  goods  and  services  available  for  purchase  in  the  economic  territory  of  the 
Member  State  for  the  purposes  of directly  satisfying  consumer  needs."  Hence,  the  HICP  is a 
"pure price  index"  the aim of which  is to  measure  consumer  price  inflation.  HICP  is  designed 
to  cover  the  actual  prices  of goods  and  services  faced  by  consumers.  The  underlying  concept 
of the HICP is therefore  defined  as "final  monetary consumption  expenditure of households". 

The  HICPs  are  not  intended  to  replace  national  CPIs.  Many  Member  States  are  likely  to 
continue  their  existing  CPIs  for  domestic  purposes,  such  as  indexation  or  wage  bargaining, 
although the HICP may be used for  such purposes. This is in line with what was recognised  at 
the outset  of the HICP  Council Regulation,  where  it is stated  that  "comparable  indices may be 
produced  instead  of or in addition to  similar indices of consumer prices already produced  or to 
be  produced  in  future  by  Member  States."  In  some  Member  States  there  are  legal  or 
institutional  barriers to  using indices other than the national  CPIs for  such  purposes.  For  these 
countries change may be a long process, but national CPIs will nevertheless  incorporate  several 
technical improvements introduced for the HICPs. 

4. 

COMPARABILITY  AND MAIN DIFFERENCES 

CPIs  have  been  developed  for  domestic  purposes  by  each  Member  State  and  while  they  have-
much  in common  there  are  important  differences  in concepts  and  methods  on  which  there  are 
few  universal  agreements.  CPIs  are  neither  "right"  nor  "wrong";  they  serve  the  multiple 
purposes  for  which  they  were  designed  to  a greater  or  a  lesser  extent.  National  CPIs  are  the 
tools  which  their  users  are  used  to.  As the HICPs  differ  from  national  CPIs  in  their  concepts, 
definitions,  methods  and  practices  it  is misleading  to  compare  directly  national  CPIs  with  the 
HICPs. 

In the harmonization  project  the  focus  lies on  comparability  among  the  HICPs  of the  different 
Member  States  as  well  as  their  relative  movements.  The  criterion  for  deciding  when  indices 
should be accepted  as comparable and when not was written  into the HICP  Council  Regulation 
as the "comparability  requirement"  (Article 4). It reads as follows: 

page  1 0^ 

"HICPs  shall  be  considered  to  be  comparable  if  they  reflect  only  differences  in  price 
changes or consumption  patterns between countries. 

HICPs which differ  on account  of differences  in the concepts,  methods  or practices  used 
in their definition  and compilation  shall not be considered  comparable. 

The  Commission  (Eurostat)  shall  adopt  rules to  be followed  to  ensure  the  comparability 
of HICPs under the procedure laid down in Article 14." 

The  (draft)  Commission  Regulation(s)5  which  lay  down  the  detailed  implementing  measures 
define  the  comparability  requirement  in  a more  operational  way  as  a  "change  in the  HICP  by 
more  than  0.1  percentage  points  on  average  over  one  year  against  the  previous  year".  This 
limit was accepted  by Member  States as a criterion for  harmonizing non-comparable  practices. 

The HICPs  can  all be said to  meet  their purposes  of  "measuring  inflation  faced  by consumers" 
to  a  degree  which  is  unknown  (and  perhaps  unknowable)  because  there  is  no  reference  by 
which  to  determine  the  extent  of  any  bias.  It  is,  however,  possible  to  say  whether  the 
differences  between  two  HICPs  are  due  to  differences  in  methods  of  compilation  and  it  is 
sometimes possible to estimate how large the differences  might be. 

5.  APPROACH TOWARDS ESTABLISHING  RULES FOR  COMMISSION 

REGULATIONS 

Implementation  has  to  take  place  taking  account  of  cost-effectiveness  (Article  13  of  HICP 
Council  Regulation),  remaining  proportional  to  the  aim pursued  (Article  3 (b) EC-Treaty,  last 
sentence) and respecting subsidiarity (Article 3 (b) EC-Treaty). 

As far  as  possible,  the  Commission  Regulations  which  implement  the  detailed  rules  are  based 
on the best  of current  practices allowing for precedent  and  legal and institutional  circumstances 
existing in Member  States. No  single national  CPI could be said to be the model that  should be 
followed  by  all Member  States.  There  is no  right  answer  in the  sense  of  a  general  agreement 
about  what  should  be  computed.  Existing  CPIs  have  been  designed  to  meet  a  range  of 
purposes and have been developed  in different  contexts. 

The  general  approach  to  the  implementing  regulations  could  be  characterised  by  the  term 
"minimum  standards".  "Minimum  standards"  in  the  sense  that  banning  acknowledged  bad 
practices  has  the  effect  of  not  only  achieving  convergence  on  good  practices  but  also  raising 
the general  level of standards and,  on the other  hand,  in the sense that  the regulations  generally 
specify  outputs  rather  than  inputs.  They  say  what  is  required  rather  than  how  to  achieve  the 
requirement,  the  detail  of  which  is  left  to  Member  States,  sometimes  in  agreement  with  the 
Commission  (Eurostat). 

More specifically,  the criteria  which  are being followed  in determining  rules are: 

(a)  Necessity  -  Rules  should  be  made  only  where  there  is  evidence  that  non-  comparability 
may arise in the absence  of such rules. Otherwise  the principle of subsidiarity  applies. 

See  Article  7  of  Commission  Regulation  (EC)  No  1749/96  and  Article  3  (4)  of  the  draft  Commission 
Regulation  concerning  minimum  standards  for  the quality  of HICP  weights 

p a g e l l^ 

(b)  Practicability  -  Rules  should  be  made  only  where National  Statistical  Institutes  (NSIs) 
can  generally  accept  them  and  are  able  to  follow  what  is  required.  It  should  also  be 
possible to monitor the application of the rules in order to ensure compliance. 

(c)  Specificity  -  Rules  should  be  clear,  unambiguous  and  suitably  restrictive  in  order  to 
ensure comparability  but  should  be sufficiently  general  as to  allow variations  in  practices 
as long as these do not result in non-comparability. 

(d)  Coherence - Rules should not conflict  with or contradict  other rules or guidelines. 

(e)  Completeness - Taken together,  rules and guidelines should  cover all that  has to be done 
in  constructing  HICPs.  Where  it  is deemed  unnecessary  to  harmonize  existing  practices 
the bounds of those practices should nevertheless be  defined. 

(f)  Best  practice - Where possible,  rules should  follow  the best  of existing  practices  so  long 

as these can be applied across the Union. 

(g)  Efficiency  -  The  costs  of  following  the  rules  should  not  exceed  what  is  necessary  to 
achieve comparable HICPs.  The cost,  over  and  above  existing  costs,  should  be  identified 
and  arrangements  for  meeting  such  costs  agreed  between  the  Commission  and  NSIs 
before  the rules are adopted. 

6. 

IMPLEMENTATION  OF THE COUNCIL  REGULATION 

Article  5  of  the  HICP  Council  Regulation  committed  Member  States  to  a  staged  process  of 
implementation as follows: 

"(a) Stage  I: 

By March  1996  at  the  latest,  the  Commission  (Eurostat)  shall,  in  collaboration  with  Member 
States,  produce  for  the  purposes  of  the  report  referred  to  in  Article  109  (j)  of  the  Treaty 
("convergence  criteria") an interim set of consumer price indices for  each Member  State.  These 
indices  shall  be  based  wholly  on  data  underlying  existing  national  consumer  price  indices, 
adjusted  in particular as follows: 

i) 

ii) 

iii) 

to exclude owner-occupied  housing; 

to exclude health and educational  services; 

to  exclude  certain  other  items  not  covered  or  treated  differently  by  a  number  of 
Member  States; 

(b) Stage  n: 

The  HICP  shall  start  with  the  index  for  January  1997.  The  common  index  reference  period 
shall be the year  1996. The  estimates  of price  changes  for  the  twelve  months  to  January  1997 
and  subsequent  months shall be established  on the basis of the indices for  1996." 

6.1.  Stage  1 of the harmonization  process: January  1996 
On 29 February  1996, the Commission  (Eurostat)  launched6 the interim  set  of CPIs referred  to 
in Article 5 (1) (a) of the HICP Council Regulation.  These interim  indices  were based  entirely 
on existing  national  CPIs, adjusted  solely so  as to  make the coverage  of goods  and  services as 
similar as possible  . National  CPIs were thus coincident  with  the  corresponding  interim  indices 

News Release No 15/96, Eurostat, 29 February 1996 

Details are given in paragraph  12.2.1. 

page  1 2^ 

regarding  methods,  concepts  and  definitions  apart  from  the  coverage  of  goods  and  services. 
They  therefore  provided  a  better  basis  of  comparison  of  consumer  price  inflation  than  the 
unadjusted  national  CPIs,  and  were  used  by  the  Commission  and  the  European  Monetary 
Institute in their first  convergence reports to the Council in 1996. 

Certain categories of expenditure were excluded  where, in the time available, it was impossible 
to  reach  agreement  on  how  best  to  construct  comparable  measures.  In  particular,  the 
expenditure faced  by owner  occupiers' when acquiring housing, not covered  in some countries, 
measured  by  imputed  rents  in  others,  and  by  mortgage  interest  payments  in  the  rest,  was 
entirely  excluded.  Expenditure  on  health  and  education  was  also  excluded  because  of  major 
institutional  differences  between  countries  in  the  ways  in  which  consumers  pay  for  such 
services,  either  directly  or via taxes.  As well as excluding  certain  items,  some  other  categories 
of expenditure that  are not  in some national  CPIs - in particular,  alcoholic  drink  and  tobacco  -
were included  for  all Member States. 

The  interim  indices  were  compiled  for  just  one  year  by  all  EU  Member  States,  Iceland, 
Norway,  and  Switzerland8.  As  required  by  the  Council  Regulation,  HICPs  started  with  the 
index for January  1997. 

6.2.  Stage 2 of the harmonization  process: January  1997 

On 7 March  1997 the Commission  (Eurostat)  published the first  set of Harmonized  Indices  of 
Consumer  Prices  (HICPs)  as required  by Article  5 (1)  (b)  of the HICP  Council  Regulation9. 
In contrast  to the interim indices, the HICPs are harmonized  in several  methodological  areas as 
well  as  coverage.  The  HICPs  do  not  simply expand  the  interim  indices,  as the HICP  is  a new 
and  different  index. 

The HICPs  will  in general  be  subject  to  retrospective  revisions.  However,  during  the  crucial 
period  for  the  decision  on  Stage  III  of Monetary  Union,  no  revisions  will  be  required  in  the 
calculation  of  the  HICP  and  any  revisions  proposed  by  Member  States  to  figures  already 
published  will  not  be  applied  by the  Commission  (Eurostat).  Thus,  with  the  publication  of  the 
index  for  December  1997  (in  January  1998)  until  the  publication  of  the  index  for  December 
1998,  index  figures  once  published  will  not  be  changed.  Retrospective  revisions  are  again 
permitted  with the publication  of the index for January  1999. 

Under  the  HICP  Council  Regulation  the  Commission  has  so  far  adopted  two  detailed 
regulations  establishing  the  specific  implementing  measures  governing  the  production  of  the 
HICP; further  draft  regulations are in preparation. 

•  Commission  Regulation  (EC)  No  1749/96  on  initial  implementing  measures,  covers  six 
initial  coverage,  newly  significant  goods  and  services,  elementary 

technical  areas: 
aggregates,  and  minimum  standards for  quality adjustment,  sampling and prices. 

•  Commission  Regulation  (EC) No  2214/96  relates to  the  HICP  and  its  sub-indices  that  will 

be transmitted  to and  disseminated  by Eurostat. 

•  A draft  Commission  Regulation  sets minimum standards for the quality  of HICP weights. 

Liechtenstein  does  not  calculate a national  CPI and,  hence, did  not  provide an  interim  index 

Details about  the available  data  are given  in paragraph 6.4 

page 13f 

•  A second  draft  Commission Regulation  amends Commission Regulation  (EC)  1749/96 with 
regard  to  the  coverage  of goods  and  services  and  proposes  a  staged  procedure  on  how  to 
extend the coverage of the HICP. 

•  A third  draft  Commission  Regulation  amends  Commission  Regulation  (EC)  1749/96  with 

regard to the geographic and population  coverage of the HICP. 

6.2.1.  Initial  coverage 
Article  3  of  Commission  Regulation  (EC)  No  1749/96  defines  the  initial  coverage  of-the 
HICPs  in  terms  of  a  relatively  new  international  classification  of  consumers'  expenditure 
known  as  COICOP  (Classification  Of Individual  Consumption  by Purpose).  A version  of this 
classification  has been specially adopted  for the HICPs, known  as COICOP/HICP10. It is based 
on  the  draft  COICOP  as  adopted  at  a joint  UN-ECE/OECD/Eurostat  meeting  on  National 
Accounts held in Geneva 30 April to 3 May  1996. 

The  weights  assigned  to  each  category  of  COICOP/HICP  vary  from  country  to  country 
depending  on  the  relative  importance  of  consumers'  expenditure  on  each  good  or  service  in 
each country. That means that there is no "uniform  basket" applying to all Member  States. This 
is in  accordance  with  the  comparability  requirement  set  out  in  Article  4  of the  HICP  Council 
Regulation. 

The additions to  coverage  as compared  with the  interim  indices11 of  Stage  1 are, for  example; 
insurances  for  cars  and  dwellings,  package  holidays, banking  services,  educational  goods  and 
services  such  as  evening  classes,  and  health  goods  that  are  obtainable  without  prescription12. 
However,  some difficult  categories, including most health and educational  services, are still not 
covered by the HICP. 

A draft  Commission Regulation  amends  Commission Regulation  (EC)  1749/96  with  regard  to 
coverage  and  proposes  to  extend  the  coverage  of  the  HICP  in  stages,  starting  in  December 
1998  to  include  difficult  categories  such  as  health  and  educational  services,  where  there  are 
major  institutional  differences  between  Member  States13.  Owner  occupiers'  shelter  costs, 
expressed  as  imputed  rents  or  mortgage  interest  payments,  are  not  regarded  as  part  of  the 
inflationary  process  and  hence  excluded  from  the  HICPs.  However,  consideration  is  beir.t: 
given to the inclusion of the net acquisition prices of new dwellings. 

6.2.2.  Newly significant  goods and  services 

CPIs  are  frequently  criticised  for  failing  to  include  new  products  such  as  mobile  phones  anJ 
personal  computers.  The  requirement  in  the  HICP  Council  Regulation  (Article  5  (3))  to 
"maintain  the  relevance  of  HICPs"  means  that  steps  must  be  taken  to  ensure  that  these 
criticisms  cannot  be  levelled  against  the  HICPs.  If  some  Member  States  add  new  products 
when  they  become  a  significant  part  of  consumption  but  others  fail  to  do  so,  it  eould  lead  to 
significant  differences  in the measured  rates of  inflation. 

See also paragraph 6.2.7. 

See paragraph 6.1. 

Details are given in paragraph  12.2.2. 

See also paragraph 8.1. 

page 14-1 

Article 4 of Commission Regulation (EC) No  1749/96 ensures that HICPs  keep broadly in step 
with each other and up-to-date in terms of market  developments.  In general,  new products  are 
incorporated  in the HICP as soon as they achieve a sales volume of over  1  part per thousand  of 
total  consumers'  expenditure  in the Member  State.  Member  States  are  required  to  build  up a 
monitoring  system  for  identifying  newly  significant  goods  and  services  from  January  1997. 
Member  States  should  make  provision  to  identify  new  products  and  to  report  these  to  the 
Commission  (Eurostat), which is acting as an information  exchange, informing  each country  of 
the products newly included in other countries' HICPs14. It  is not,  however,  a simple matter  to 
define  what  newly  significant  items  are  or  to  formulate  practicable  procedures  by which  they 
can be identified.  The requirement remains to be clarified  in the process of its operation. 

6.2.3.  Minimum  standards  for  procedures  of quality  adjustment 

HICPs  should  measure  "pure  price  change"  unaffected  by  quality  changes  in the  things  which 
people buy. The prices taken for a HICP should therefore  be adjusted  for  changes in the quality 
of the goods or services to which they relate. However,  there is no universal  agreement  on just 
how this should  be done and  there are major  differences  between  countries  in actual  practices. 
This is probably the largest  single source of non-comparability15. 

Differences  between  CPIs may arise because the  same change in the physical  characteristics  of 
an item  are treated  in quite different  ways from  one country to  another.  This is not  to  say that 
the same quality characteristic  should be valued to the same extent  in different  Member  States, 
only  that  the  principles  and  procedures  for  valuation  should  be  the  same.  Differences  in 
practice  do  not  "average  out"  across  the  goods  and  services  covered  by  the  indices;  on  the 
contrary,  they  are  likely  to  cumulate  to  differences  well  in  excess  of  0.1  percentage  points. 
Studies, which  are continuing,  on the different  treatments  of quality  changes  in motor  vehicles 
suggest  that  this  factor  alone  might  lead  to  CPI  effects  greater  than  0.1  percentage  point  on 
annual rates. 

Article  5  of  Commission  Regulation  (EC)  No  1749/96  requires  Member  States  to  examine 
quality  adjustment  procedures  and  to  avoid  "automatic  linking",  which  is  equivalent  to  the 
assumption  that  the difference  in price between  two  successive  "models"  is wholly  attributable 
to  a  difference  in  quality.  If  a  Member  State  always  assumes  that  a  price  increase  from  one 
"model"  to  another  is  due  to  a  quality  change  and,  therefore,  reflects  no  price  change  in  the 
CPI,  this  automatic  linking  may  lead  to  underestimation  of  inflation  and  vice  versa.  Member 
States  are  required  to  change  procedures  to  ensure  that  automatic  linking  is  not  used  from 
January  1997.  Non-automatic  linking  may  continue  to  be  used,  i.e.  where  it  can  be  justified 
that the price difference  between  the item and its replacement  is equal to the quality  difference. 
Furthermore,  "overlap  pricing"  may be used,  i.e. where  a replacement  is anticipated  and  prices 
are  observed  for  the  item  and  its  replacement  at  the  same  time;  the  price  difference  in  the 
overlap period  is used  as an estimate for the value of the quality  difference. 

Member  States  need  to  be  able  to  demonstrate  that  automatic  linking  is  not  used.  Selective 
monitoring  of implicit and explicit  quality adjustments  is required  to  establish  comparable  good 

Details arc given in paragraph 12.5. 

See for  example  the  "Boskin Report":  "Towards a more accurate  measure  of the  cost  of  living",  Final 
report  to  the  United  States  Senate  Finance  Committee  from  the  Advisory  Commission  to  study  the 
Consumer Price Index. Michael J. Boskin, Chairman et. al., 4 December 1996 

page 15] 

practices16.  The  Commission  (Eurostat)  will  assist  in this  process  by  setting  up  a  database  of 
quality change estimates provided both by Member States themselves and from  other sources. 

The problems  of determining  quality  adjustments  will  require  substantial  further  research.  The 
Commission Regulation  focuses  attention on these problems as specific  adjustments  have to be 
made  in  the  large  number  of  situations  where  automatic  linking  has  been  used.  The 
Commission  (Eurostat)  is supporting  a programme  of work  to  design  appropriate  adjustments 
for  changes in the quality of goods  and  services the prices of which  are used  in the  production 
of  specific  HICP  sub-indexes.  At  present,  research  is  concentrated  on  the  development  of 
quality  adjustments  for  selected  high-tech  goods  and  the  establishment  of  information  for 
inclusion in a Eurostat  central database of quality  adjustments. 

6.2.4.  Minimum  standards  for  prices 

A  widespread  practice  used  in  price  estimation  for  CPIs  is  known  as  "carry-forward". 
Fieldwork  price collection involves the observation of the price, usually each month,  of a set of 
specified  products  in specified  retail  outlets.  If,  for  any reason,  a  particular  price  cannot,  or  is 
not,  collected,  a  common  procedure  is  to  simply  use  the  price  observed  on  the  previous 
occasion  - which may have been many months previously. 

The banning of the practice  of  "carry-forward"  - which  can lead  to  serious biases - is the main 
concern  of  Article  6  of  Commission  Regulation  (EC)  No  1749/96  which  requires  Member 
States to  maintain their target  sample from  month to  month.  Sample  maintenance  is important 
because  the  aim  is to  measure  price  changes rather  than  price  levels  per  se. Where  prices  are 
not  observed  they  must  be  estimated  by  an  appropriate  procedure,  and  not  by  automatically 
carrying  forward  the  last  observed  price.  Member  States  should  provide  a  statement  of  the 
"target  sample"  which  is  essentially  the  present  plan  for  the  number  of  prices  that  should  be 
obtained  and  summary  information  on  the  numbers  of  missing  prices  for  which  estimates  are 
substituted  and on the estimation  procedures17. 

Currently, the Commission Regulation  leaves the following  questions to be answered: 

•  What are "non-appropriate  estimates" for  missing (or non-observed)  prices? 

•  What  limit  should  be  set  on  the  number  of  estimates  used  (missing  prices)  to  ensure 

comparability? 

The  Commission  (Eurostat)  will  carry  out  studies  of  the  effects  of  estimation  and  will  define 
the  appropriate  limit  for  the  numbers  of  estimated  prices  and  permissible  procedures.  Studies 
should  enumerate and evaluate the various procedures used  when  prices are missing  and  others 
that  might be used.  Evaluation  should  take account  of item replacement  and  quality  adjustment 
issues. Ideally  it  should  assess  the  scale of errors in actual  estimates  for  missing prices but  this 
would  require  some  idea  of what  the  "right  answer"  should  be.  An  alternative  approach  is  to 
make" a qualitative assessment  of the assumptions that underlie different  imputation  procedures. 
It  would,  for  example,  be  inappropriate  to  assume  that  the  occurrence  of  missing  prices  is a 
random  event,  though  this may not lead to unacceptable errors at least for  one month. 

"' 
1 

Details are given in paragraph  12.7. 

Details about the target samples are given in paragraph  12.8.2. 

page 16] 

6.2.5.  Price indices for elementary  aggregates 

Article 9 of HICP  Council Regulation  requires that  the HICP  shall be a Laspeyres-type  index. 
Though  the HICPs  and  CPIs produced  by Member  States  may  differ  in  detail,  for  example in 
the frequency  of updating  weights18, they can be broadly  described  as Laspeyres-type  indices. 
That  is, indices in which the month to  month  movements in prices are measured  as an  average 
of price indices using expenditure weights which are an appropriate  reflection  of the pattern  of 
consumption  of,  and  the  structure  of  prices  paid  by,  the  index  population  in  the  weight 
reference  period. 

However,  the  HICP  Council  Regulation  does  not  define  the  formula  to  be  used  for  the 
calculation  of  "elementary  aggregates",  which  is  the  lowest  level  of  detail  for  which 
expenditure  weights  are  known.  Elementary  aggregates  are  computed  by  aggregating  prices 
where there are no expenditure weights. Article 7 of Commission Regulation  (EC) No  1749/96 
concerns  the  formula  to  be  used  for  the  calculation  of  such  elementary  aggregates.  Practices 
varied  considerably  between  Member  States,  and  the  achievement  of  consensus  was  difficult. 
The  arguments  centred  on  two  issues.  The  first  was  whether  the  detailed  indices  should  be 
calculated  by taking  the ratio  of the  average  price  of items in a particular  stratum,  or  whether 
to take the average of the ratios of those items. The second was how to  define  "average" in the 
above calculation: the arithmetic mean or the geometric mean19. 

The Commission Regulation  allows the use of the ratio  of either  arithmetic  or geometric  mean 
prices,  but  not  the  arithmetic  mean  of  price  relatives20.  Member  States  which  use  formulae 
other than the  ratio  of arithmetic  mean  prices  or the ratio  of geometric  mean  prices  should  be 
in  a position  to  demonstrate  that  the  alternative(s)  used  meets  the  comparability  requirement. 
Member  States  were  not  required  to  change  the  formula  for  the  calculation  of  elementary 
aggregates for the indices before January  1997, although they were encouraged  to do.so. 

The decision to rule out the use of the average of price relatives formula  was not  taken  on the 
grounds that  it is generally accepted  as wrong but rather that  it does not give results which  are 
"comparable"  to  those  given  by  other  formulae.  Nevertheless,  the  decision  means  that  future 
research  can concentrate on the merits of these other  formulae. 

6.2.6.  Minimum  standards for sampling 

Statistical theory suggests that random sampling is desirable in order to avoid bias in a statistic. 
However,  this  is  not  easily  achieved  when  it  comes  to  the  collection  of  prices  for  a  CPI  and 
most  Member  States  follow  sampling  procedures  which  are  referred  to  as  "purposive"  or 
"representative".  The  decisions  on  which  prices  to  collect  may  thus  be  determined  by  the 
degree  of  co-operation  of  retailers  or  by  the  inclinations  of  particular  price  collectors.  While 
this  may  not  seem  to  be good  practice  it is not  easy  to  demonstrate  that  the  resultant  indices 
are non-comparable  on this account. 

Studies commissioned  by the Commission  (Eurostat)  into these  matters  indicated  that  different 
sampling  techniques  provide  considerable  scope  for  non-comparability.  They  suggested  that 
representative  versus  probability  sampling  could  give  large  differences  for  item  groups,  but 
these  were  not  significant  on  average.  Furthermore,  the  studies  indicated  that  the  number  of 

See also paragraph 8.2. 

19 

2o 

The United States' Bureau of Labor Statistics (BLS) is also investigating this following the Boskin report 

Details are given in paragraph 12.6. 

page  111 

elementary  aggregates  could  have short  term  effects  on  comparability.  In  contrast,  differences 
in  the  regional  coverage  of  CPIs  did  not  seem  to  lead  to  non-comparability,  since  the 
differences  between  the  regional  indices  and  the  overall  index  seem  to  be  entirely  random. 
From  the  studies  it  was  clear  that  a  rule  which  changes  current  practices  towards  improved 
comparability was needed. 

The  aim  of  Article  8  of  Commission  Regulation  (EC)*No  1749/96  is  to  improve,  where 
necessary,  the  reliability  and  comparability  of  HICPs  by  reducing  errors  that  arise  from 
different  sample  designs  and  practices.  It  requires  that  Member  States  should  check  their 
samples  of  prices  as to  their  adequacy  for  the  HICP  and  adjust  sampling  procedures  as  they 
judge  necessary.  Member  States should  not  simply assume that  their target  sample is adequate 
but are required to provide some evidence  . 

The  extensive  use  of purposive  sampling  means that  there  is no  adequate  theoretical  frame  by 
which  to judge  the  reliability  (representativity  and  precision)  of  HICPs.  Only  a  few  Member 
States  make any attempt  to  compute  sampling errors  for  their  CPIs and  none has any  measure 
of  bias.  Such  errors  would  also  be  an  aid  to  more  efficient  sample  design.  Studies  are  being 
carried  out  to  assess both  sampling  error  and bias in HICPs  and  these  will be used  later to  set 
appropriate  limits on such  errors. It  is necessary to  establish what  combination  of the  numbers 
and  specifications  of  elementary  aggregates  and  the  number  of  prices  required  within  each 
elementary aggregate will provide a HICP of sufficient  reliability. 

6.2.7.  Transmission  and  dissemination  of sub-indices  of the  HICP 

The HICP  Council  Regulation  requires  a  specification  of  the  sub-indices  to  be  produced  and 
published  along with the HICPs. Whilst the assessment  of price stability under the  convergence 
criterion  primarily  concerns  the  "all  items"  HICPs,  the  analysis  of  sources  of  inflationary 
pressure requires a sub-division  of the HICP into component  parts relating to different  product 
groups.  Commission  Regulation  (EC)  No  2214/96  defines  a  set  of  sub-indices  of  the  HICP 
with  common  coverage  that  the  Member  States  are  required  to  transmit  to  the  Commission 
(Eurostat).  The  sub-indices  are based  on the classification  COICOP/HICP22. This was  a  major 
step forward  for  many users as the components  of national  CPIs  do  not  conform  to  a common 
classification. 

Each month Member  States transmit the primary index series, i.e. the HICP  and  its sub-indices, 
to  the  Commission  (Eurostat)  correct  to  one  decimal  place,  for  example  99.5  or  102.4  taking 
1996  =  100.  In  order  to  avoid  excessive  and  conflicting  rounding  errors,  all  derived  statistics 
are  calculated  from  these  primary  series.  All  derived  statistics  are  published  correct  to  one 
decimal  place.  Annual  average  index numbers are the  sum  of the  twelve  monthly  figures  (with 
one decimal  place) divided by twelve and rounded  to  one decimal  place. The  12-month  change 
in this annual  average is, however,  based  on the unrounded  averages  i.e. obtained  directly  from 
the  primary  series.  Member  States  also transmitted  the  initial  sub-index  weights  used  and  will 
report  any  subsequent  changes  to  the  Commission  (Eurostat).  Weights  for  the  sub-indices  are 
sent  to  Eurostat  to  a degree  of  detail  of  at  least  1 in  1000. The  weights  of the  sub-indices  of 
the EICP  and  the MUICP  are disseminated  to  a degree  of detail  of  at  least  1 in a  1000.  Since 

Details about the target samples are given in paragraph  12.8.2. 

See also paragraph 6.2.1. 

page  18/^ 

March  1997  the  Commission  (Eurostat)  has  been  disseminating  every  month  all  sub-indices 
and their weights  . 

6.2.8.  Common  reference  periods 

There  are three types of base period  used  in the  construction  of  CPIs: the  period  from  which 
the  expenditures  for  weights  are  obtained  ("weight  reference  period"24);  the  period  in  which 
base prices are valued  ("price  reference  period"); and the period  in which the index base  is set 
to  100  ("index  reference  period").  There  are  differences  between  national  CPIs  in  all  these 
reference  periods. 

For the HICP, the Council Regulation  sets the index reference  period  as  1996 =  100. Since the 
HICPs are derived  from  national  CPIs it was necessary to  "re-reference"  or  "price-update" the 
HICP  and  its  sub-indices  to  1996; that  is to  express the  movements  in the  HICP  and  its sub-
indices  by  reference  to  the  average  level  of  prices  in  1996,  and  subsequently  to  December 
1996, December  1997, December  1998, etc. Re-referencing  is simply a scaling  exercise  which 
in itself has no effect  on the measured rate of inflation.  However,  it allows HICPs to be treated 
and presented  in the same way, provides for  the construction  of indices for  groups  of Member 
States or the EU as a whole,  and  allows for  country weights  changing  each year.  The  problem 
of  aggregating  CPIs  with  different  references  and  re-weighting  frequencies  brought  out  the 
computational  advantages of the Laspeyres  formula25. 

6.3.  The EICP  and  the  MUICP 

The  European  Index  of  Consumer  Prices  (EICP)  is  calculated  as  a  weighted  average  of  the 
HICPs  of the  15 EU Member  States. The index is computed  as an annual  chain index  allowing 
for  country  weights  changing  each  year.  The  weight  of  a Member  State  is  its  proportion  of 
final consumption  expenditure  of households  in the EU total. The values of final consumption 
expenditure  in national  currencies  are converted  into  purchasing  power  standards  (PPS)  using 
the  purchasing  power  parities  of  final  consumption.  The  country  weights  used  in  1997  are 
national  accounts  data  for  1995  at  1996  prices.  The  European  Economic  Area  Index  of 
Consumer  Prices  (EEAICP)  is  calculated  in the  same  way,  with  the  inclusion  of  Iceland  and 
Norway26. 

The  task  of  aggregating  Member  States'  HICPs  to  a  European  HICP  is  an  exercise  of 
measuring  and  aggregating  the  evolution  of  the  inner  values  of  all  EU  currencies  in  order 
obtain  a  corresponding  measure  of  EU  inflation.  The  final  consumption  expenditure  in 
monetary  transactions  is the appropriate weight  as it is commensurate with the coverage  of the 
HICPs.  It  is right  for  Member  States to be represented  by their volume of consumption  valued 
at  standard  prices  relative  to  other  Member  States  rather  than  by  values  which  depend  on 
financial  and  other  factors.  According  to  current  Eurostat  practice  national  weights  for  CPIs 
and  HICPs  are  converted  using  purchasing  power  parities  (PPPs).  Their  use  reduces  the 
disturbing  volatility  of  exchange  rates  and  enables  an  additive  and  meaningful  expression  of 
each  Member  State's  relative  importance  in terms  of final consumption  expenditure,  e.g.  two 
countries with the same volume of consumption  are given equal weights. 

:J 

Details are given in paragraph 6.4. 

Details are given in paragraph  12.3.2. 

See also paragraph 6.2.5. 

Liechtenstein  is not included in the EEAICP since it neither calculates a national CPI nor a HICP 

page 19J 

For the participating countries of the Monetary Union the national  currencies will be replaced 
by the Euro. It remains to be decided how to calculate the Monetary Union  index  of  consumer 
prices  (MUICP),  and in particular how  to  derive  each  Member  States'  relative  weight  in  the 
MUICP, when the final household  consumption  expenditure  of the participating  countries  will 
be expressed  in Euros. 

6.4.  HICP data disseminated  by the Commission  (Eurostat) 

The HICPs are the result of three years' co-operation between the  Commission  (Eurostat)  and 
the National  Statistical  Institutes  on harmonizing  the  different  methods  and  practices  used  to 
compile price indices. The first set  of HICPs was  published  on  7 March  1997.  Since  then  the 
Commission (Eurostat) publishes each month: 

• 

• 

• 

the all-items HICPs for all EU Member States plus Iceland  and Norway27, 

the European Index of Consumer Prices (EICP), 

the European Economic Area index (EEA), 

•  about  100  sub-indices,  their  corresponding  weights  and  weighted  averages  (EICP  and 

EEA), and 

• 

the country weights. 

For the HICPs and their sub-indices the following  information  is made available: 

• 

• 

• 

• 

• 

the monthly index level, 

the monthly rate of change, 

the annual rate of change, 

the annual average index, and 

the annual average rate of change. 

The  information  is  updated  monthly  and  available  to  all  users  from  the  Eurostat  database 
"NEWCRONOS". The information  can be obtained through Eurostat's Data  Shop  network. 

The launch of the first set of HICPs on 7 March  1997 was well received  in the media, arid their 
monthly  publication  thereafter  is  working  to  the  satisfaction  of  users.  As  a  result  of  the 
complexity  of the  operation  of  compiling  HICPs,  Finland  discovered  a  mistake  in  their  HICP 
calculation just  after  the  launch  of the first set  of  indices.  This  mistake  was  corrected  and  the 
Finnish  HICP  series was revised  with the  publication  of the February  indices  on  7 April  1997. 
The  German  and  Austrian  HICP  series  were  also  corrected  for  mistakes;  revised  figures  for 
both  Member  States  were  disseminated  with  the  publication  of  the  August  HICPs  on  7 
October  1997. 

In  line with  Article  5 (1)  (b)  of the HICP  Council  Regulation,  the  HICP  starts  with  the  index 
for  January  1997.  The  common  index  reference  period  is the  year  1996.  The  rates  of  change 
for  1997  are  established  on  the  basis  of  the  indices  for  1996.  The  HICP  concepts  thus  apply 
starting with the index for January  1996. 

21 

Liechtenstein and Switzerland do not calculate HICPs 

page 2040 

Although the indices for  1995 cannot be considered as a legal requirement,  all Member States 
agreed to provide them28. The 1995 indices for the United Kingdom are the interim indices for 
1995 adjusted for the geometric mean effect29.  The indices for 1995 and the rates of change for 
1996 based on 1995 do not fulfil the HICP standards, but they are considered to be superior to 
national  CPIs  and  the  interim  indices30  as  regards  comparability.  They  are,  therefore, 
considered as the harmonized measure of inflation for the months in 1996 and are published by 
the Commission (Eurostat). 

Ireland  estimated  monthly HICPs  and monthly sub-indices  for  1995  and  1996 based  on their 
quarterly  data.  The monthly figures are adjusted  linear interpolations  of  the  quarterly  indices 
making allowances  for  several  sales  effects.  The  estimation  of these  sales  effects  is  based  on 
seasonal patterns identified from United Kingdom data. 

To calculate the rates of inflation  for  1995 the Commission  (Eurostat) would  imputes indices 
for  the  months  of  1994  based  on the  rates  of  change  for  the  interim  indices  in  1995.  These 
estimates are available only for the all items index. 

Table 1: 
Overview of HICP data available since 7 October 1997 

Monthly indices 

HICP 
Sub-indices 

1995 
all Member States 
not F and UK 

1996 
all Member States 
all Member States 

1997 
all Member  States 
all Member  States 

Monthly rates of change HICP 

Sub-indices 

[1995/1994]31 
all Member States 
None 

1996/1995 
all Member States 
not F and UK 

1997/1996 
all Member  States 
all Member  States 

7.  DEROGATIONS FROM THE PROVISIONS OF THE HICP  COUNCIL 

REGULATION 

Article  5 of the FIICP Council  Regulation  allows the  Commission  (Eurostat),  after  consulting 
the EMI, to grant, where necessacy, derogations up to one year from the timetable established 
through  the  Council  Regulation.  "Necessary"  means  that  a  Member  State  has  to  make 
significant  adjustments to its statistical system in order to fulfil  its obligations. 

Only  few  Member  States  sought  a  derogation32.  In  most  cases  the  issues  concerned  minor 
adjustments  where  satisfactory  solutions  could  be  found  in  accordance  with  the  agreed 
implementation  time  table.  Eventually,  the  Commission  (Eurostat)  has  granted  only  one 
derogation  to  Denmark  for firstly applying  the  elementary  aggregates  formulae  in  September 
1997. Retrospective series are to be provided. 

28 

29 

30 

31 

32 

France and the United Kingdom do not provide sub-indices for  1995 

Explanations are given in  paragraphs 6.2.5. and 12.6. 

The  interim  indices  are  available  from  January'1994  to  December  1996  for  all  EU  Member  States. 
Iceland, Nonvay, and Switzerland 

Interim indices, see also paragraph 6.1. 

Denmark, Germany, France, Italy 

pagc2lfli 

8. 

FURTHER STEPS TOWARDS HARMONIZATION 

Although the HICPs provide the best  current  statistical  basis for international  comparisons  of 
consumer  price  inflation,  and  very  considerable  progress  has  been  made  in  harmonizing 
methodologies, more work remains to be done to achieve even better comparability. HICPs are 
not  and  will  never  be  "fully"  harmonized  consumer  price  indices,  inasmuch  as  the  aim  is 
comparability and not full  harmonization.  The Treaty on European Union expressly allows for 
national  differences,  which  will  continue  to  exist  but  at  a  level  where  the  requirement  of 
comparability  of the HICP is not breached.  Technical  regulations  and agreements will  shortly 
be proposed in the following areas: 

8.1.  Extended  coverage 
Article  3  of  Commission  Regulation  (EC)  No  1749/96  defines  the  initial  coverage33  of  the 
HICPs from  January  1997.  Some  difficult  categories  such  as  health  and  educational  services, 
where there are major institutional  differences  between Member States,  are at present not fully 
covered  by  the  HICP.  Since  many  goods  and  services  in  the  area  of  health,  housing,  and 
education  are  heavily  subsidised  by  the  state,  it  is  not  always  clear  which  prices  should  be 
included  in an index of consumer prices,  and the ways of treating this problem  differ  between 
Member States. 

A draft Commission Regulation amends Commission Regulation  (EC)  1749/96  with regard to 
coverage  and  defines  a staged  procedure  on  how  to  extend  the  coverage  of  the  HICP.  The 
concept  "household final monetary  consumption  expenditure"  in the  draft  regulation  defines 
both the goods and services to be covered and the prices to be used, which should be taken net 
of reimbursements,  subsidies,  and  discounts.  The  draft  regulation  follows  the  definitions  laid 
down  in the  new European  System  of  Accounts  (ES A  1995)  where  they  are  appropriate  for 
international  comparisons of inflation,  and defines the details by reference to COICOP/HICP34. 
The  draft  regulation  provides  that  the  coverage  of  goods  and  services  shall  be  completed  in 
two stages, in December  1998 and December  1999 as follows: 

(a)  Rents: By December  1998 the treatment of subsidised rents will be harmonized. 

(b)  Services  connected  with  the  dwelling:  By  December  1998  the  coverage  of  refuse 
collection,  sewerage  services  and water  supply,  unless they  are financed  out  of general 
taxation, will be extended. 

(c)  Financial  services:  By  December  1999  the  HICP  will  cover  the  remaining  financial 

services, e.g.  charges for tax consultancy or investment advice. 

(d)  Education:  By December  1998 the HICP  will  cover  all  educational  goods  and  services 
in a harmonized  way.  Education  will  be covered  on a net basis,  i.e.  the weights  and the 
prices  will  refer  to  the  amounts  actually  paid  by  consumers  net  of  reimbursements  by 
government.  This  applies  to  school  books  and  other  materials,  school  meals,  and  to 
educational  services  provided  by all types of schools  and universities.  To  solve  some  of 
the methodological  details, including the treatment  of income dependent  prices, a special 
Task Force has been set up by Eurostat. 

(e)  Health:  By  December  1998  the  HICP  will  cover  all  health  goods  and  services  (apart 
from  hospital  services)  in a harmonized  way.  Health  will  be  covered  on  a net basis,  i.e. 
the  weights  and  the  prices  will  refer  to  the  amounts  actually  paid  by  consumers  net  of 

See also paragraph 6.2.1. 

See paragraphs 6.2.1 and 6.2.7. 

page 224 

reimbursements  by  social  security.  The  Task  Force  will  look  at  the  methodological 
details of implementation.  The methodology for the inclusion  of hospital  services will be 
settled  no later than December  1998.  The category  will be  included  as  soon  as  possible 
thereafter. 

(f) 

Insurance:  By  December  1998  the HICP  will  cover  all  insurances  connected  with  the 
dwelling, not only contents insurance. By December  1999 at the latest the HICP will also 
cover  private health,  civil liability, and travel  insurance.  The  methodology  will be  settled 
by  another  special  Task  Force  set  up  by  Eurostat.  If  the  Task  Force  finds  an  early 
solution, the implementation  could be scheduled for an earlier date. 

(g)  Social  protection  services:  By  December  1998  the  HICP  will  cover  the  services 
provided  by  crèches,  nurseries,  play-schools  and  kindergartens  in  a  harmonized  way. 
They  will  be  covered  on  a net  basis,  i.e.  the  weight  and  the  prices  refer  to  the  amount 
actually  paid  by  the  consumer  net  of  reimbursements  by  government.  Other  social 
protection  services,  especially  retirement  homes,  give  rise  to  similar  implementation 
problems  as hospital  services. However,  since those  services  are  of growing  importance 
they should be covered by the HICP. The methodology  for the inclusion  of,  for  example, 
retirement  homes  will  be  settled  no  later  than  December  1998.  The  category  will  be 
included  as soon as possible  thereafter. 

(h)  Exclusions:  The  following  will  be  excluded  from  HICP  coverage:  narcotics,  imputed 
rentals of owner occupiers, other imputed rentals, games of chance, certain personal  care 
services, life insurance and financial  intermediation  services indirectly  measured. 

Where  technically  feasible,  retrospective  series  will  be  compiled.  It  is  estimated  that  the 
combined  weight  of the  above  goods  and  services  is  about  6%  of  "household  final  monetary 
consumption  expenditure"35. 

There also remains the question  of how to  measure the impact  of inflation  on owner  occupiers 
in  respect  of  housing36.  The  actual  prices  faced  by  owner-occupiers  for  minor  repairs  of  the 
dwelling  and  regular  maintenance  services  are  already  covered  in the  HICP.  Imputed  rents  or 
mortgage interest payments, which are used in some CPIs, are not actual  price transactions  and 
considered  inappropriate  for  international  comparisons  of  consumer  price  inflation.  The 
question  has been  discussed  extensively  by Member  States. Eurostat  submitted  to  the  SPC  on 
13 March  1997 a position  paper asking its view on whether  to  exclude  such  a  non-comparable 
item  from  the  HICPs  or  to  include  it  on  the  basis  of  net  acquisition  prices  for  new  owner-
occupied  dwellings. Many Member  States were sympathetic to the idea that the prices faced  by 
owner  occupiers  when  acquiring  housing  should  be  covered  by the  HICP,  but  felt  that  it  was 
premature  to  proceed  with  an  index  of  net  acquisition  of  new  dwellings.  It  was  agreed  that 
discussions  on this issue should  continue  and  that  further  research  work  should  be  carried  out 
before  a final decision could be taken. A special Task Force will be set up in  1998 by Eurostat. 

Extension  of coverage  beyond  the  obvious  core  of goods  and  services  required  agreement  on 
the  definition  of  inflation.  The  scope,  or  coverage  in  principle,  was  taken  as  "household final 
monetary  consumption  expenditure".  Some commentators  have  suggested  that  the  indices  are 
seriously  deficient  on  account  of the  incomplete  coverage  (in  practice)  assuming,  by  reference 
to some CPIs, this to be large and therefore  important.  The Commission  (Eurostat)  has pointed 

3:> 
36 

See also paragraph  12.2.3. 

See also paragraph  10.2. 

page 2 

out that CPIs are an inappropriate reference and the significance  of omissions depends on their 
relative price movement rather their size which, being net of reimbursements, will be small37. 

8.2.  Minimum standards for the quality of HICP weights 

Article  8  (3)  of  HICP  Council  Regulation  No  2494/95  requires  that  HICP  weights  are 
sufficiently  up-to-date  to  ensure  comparability  whilst  avoiding  the  cost  of  having  Household 
Budget  Surveys  more  frequently  than  every  five  years.  Article  5  (3)  further  requires  that 
implementing measures for maintaining the "reliability and relevance" of the HICPs be adopted. 
CPIs  are fairly  insensitive to  changes  in weights.  Imposing  the  cost  of  high  precision  for  all 
weights by frequent  and comprehensive  up-dating  would  not  be  desirable.  Nevertheless,  it  is 
necessary to  give some assurance that large differences  in the frequencies  of up-dating  do not 
lead to non-comparability. 

A draft  Commission Regulation  sets minimum standards for the quality of HICP weights. The 
weights used  can in general  relate to  a weight  reference  period up to  seven years prior to the 
current  year.  However, adjustments  need  to  be  made  for  significant  changes  in  expenditure 
patterns in the intervening periods. The draft regulation thus gives a minimum guarantee of the 
quality  of  weights  used  to  construct  the  HICP  and  minimises  any  disparity  between  HICPs 
arising from different up-date  frequencies38. 

The precise method of reviewing the weights is left to Member States to decide  and to justify. 
The  Commission  (Eurostat)  has  suggested  that  it  is  possible  to  develop  quality  control 
procedures  which  focus  on  those  relatively  few  weights  which  will  be  critical  for  the 
comparability,  relevance  and  reliability  of  the  HICP.  A  report  of  the  review  of  the  weights 
should be made available to the Commission (Eurostat).  As a minimum this should  show that, 
where changes in the prices of specific goods and services have diverged from the movement of 
the all items HICP, procedures have been instituted for monitoring the weights of such items in 
order to ensure that they are appropriate. 

The  Commission  (Eurostat)  has for  a number of years been working  with Member  States  to 
harmonize  the  design,  content  and  frequency  of  Family  Budget  Surveys.  This  work  has 
potential  importance  for  the  harmonization  of  CPIs  since  the  quality  and  up-to-dateness  of 
weights depend on such data sources as well as other sources such as National Accounts data. 

8.3.  Geographic  and  population  coverage 

National CPIs differ in their choice of population coverage, e.g.  some exclude persons living in 
institutions,  others  include  them.  A  particular  problem  concerns  the  expenditure  of  residents 
whilst in a foreign  country,  and the expenditure of foreign visitors in the home country,  and at 
the  same  time  distinguishing  between  business  and  private  expenditure.  Article  3  of  Council 
Regulation (EC) No 2494/95  restricts the HICPs to  "goods and services available for purchase 
in  the  economic  territory  of  the  Member  State",  but  this  does  not  say  anything  about  the 
residency  status of the consumer.  This question is associated  with what Member  States use as 
a  primary  source  of  HICP  weights,  i.e.  National  Accounts  or  a Household  Budget  Survey. 
People  living  in  institutional  households  and  foreign  visitors  are  not  normally  covered  in 

37 
3K 

Details are given in paragraph  12.2.3. 

See paragraphs 12.3. and 12.4. for more details 

page 244 

Household Budget  Surveys.  They  are included  in principle in the National  Accounts,  but the 
accurate derivation of corresponding HICP weights may be difficult. 

The HICPs launched in March 1997 cover all households, regardless of income, resident in any 
part of the economic territory (rural and urban). Hence,  some Member States needed to adjust 
their  HICP  weights  to  reflect  households  not  covered  by  their  national  CPI,  for  example 
Greece, Portugal and the United Kingdom. However, the treatment of the expenditure of non 
residents,  visitors  on business  trips  and institutional  households  for  the  HICP  is  the  same as 
that for the national CPI39. 

A  draft  Commission  Regulation  provides  a  harmonized  definition  of  the  geographic  and 
population  coverage  of  the  HICP.  It  specifies  that  the  coverage,  for  the  calculation  of  the 
HICP weights, should include all "household final monetary consumption expenditure"40 which 
takes  place  on  the  economic  territory  of  that  Member  State41.  In  particular,  the  coverage 
should include expenditure by foreign visitors and exclude the expenditure by residents whilst 
in a foreign country, i.e. the HICP should follow the "domestic concept". The coverage should 
refer to the expenditure of all private households irrespective of the area in which they live, and 
also  to  individuals  living  in  institutions.  Coverage  should  be  households  independent  of  the 
household income level. Expenditure incurred for business purposes should be excluded. 

8.4.  Comprehensive Definition  of HICPs 

In order to  provide  a complete  and formal  overview  of HICP  construction,  the  Commission 
(Eurostat)  will  revise  and  extend  the  implementation  agreement  approved  by  the  SPC  in 
January  1997.  The  document  will  tackle  a  number  of  issues  concerning  the  construction  of 
HICPs especially those areas for which legislation was considered  premature or inappropriate. 
Examples  are  discounts,  data  editing,  timing  of  data  collection  and  seasonal  adjustment.  In 
order to speed up the completion of the methodological frame for the HICPs,  "guidelines" will 
be formulated  so  as to cover the variety of existing  concepts,  methods  or practices which are 
considered  to  give  comparable  results.  The  aim is  to  provide  a  complete  description  of  the 
essentials of the HICP in 1998. 

So  far  a  legislative  framework  has  been  produced  for  those  aspects  of  HICP  construction 
which have the greatest potential for introducing non-comparability in results. Hence, essential 
parts  of the  indices  have  been  defined,  but  several  other  aspects  of HICP  construction  have 
been  left  open  which  can  affect  the  resultant  indices.  Differences  in  these  are  not,  on  the 
evidence available at this time,  expected  to  lead to  significant  non-comparability.  This lack  of 
full  definition  has the advantage  of allowing Member  States to  follow  the variety  of practices 
adopted  for their CPIs but the disadvantages that the  practices followed  are not  documented 
and  not  known  either to  other Member  States,  to  Eurostat  or to  users.  Further they  may be 
changed  without  reference  to  any authority  outside the National  Statistical  Institute.  In order 
to complete the framework  within which the HICPs are defined  and legitimised  it is necessary 
to have a description of what is currently done by Member States. The aim is not  to  evaluate 
but to give a detailed description of current practices. 

39 

411 

41 

Except  for  Austria,  where  the  national  CPI  refers  to  the  expenditure  by  residents  on  the  domestic 
territory, whereas the HICP also includes the expenditure by foreign visitors ("domestic concept") 

See also paragraph 8.1. 

The combined weight of these extensions is given in paragraph  12.2.3. 

page 251 

ENLARGEMENT OF THE  EU 

9. 
The decision has yet to be taken concerning the applications for membership42 of the European 
Union,  having  regard  to  the  candidates'  ability  to  take  on  the  obligations  of  membership, 
including  adherence  to  the  aims  of  political,  economic  and  monetary  union.  The  statistical 
information, which is relevant for the purposes of membership, is supplied by Eurostat. 

During the pre-accession stage the Candidate Countries are required to implement the "acquis 
communautaire"43,  which comprises the implementation  of Harmonized  Indices  of  Consumer 
Prices (HICPs).  In  1996 the first meeting was  held with the  Candidate  Countries  in order to 
involve them as fully as possible in the harmonization project. At the end of  1996 Eurostat sent 
out a questionnaire to all Candidate Countries on the legislative framework establishing HICPs 
in the Member  States.  The aim was to  identify  gaps  and shortcomings  in complying  with the 
HICP requirements, needs for technical assistance,  available resources, potential  costs,  as well 
as the timetable  for the  implementation  of  HICPs.  The  information  will  serve  as  a basis  for 
discussion for future meetings and for establishing a detailed programme of work. 

First evaluations of the questionnaire focused  on the Candidate Countries' ability to provide an 
index  covering  all goods  and  services  as required under Article  3  of  Commission  Regulation 
(EC) No  1749/96  defining the initial coverage  of the HICP44.  The following  table summarises 
the result: 

The candidate  countries  are: Bulgaria,  Cyprus,  Czech  Republic,  Estonia,  Hungary,  Latvia,  Lithuania, 
Poland, Romania, Slovak Republic, and Slovenia 

43 

The legal framework  that applies to the Member States of the European Union 

See also paragraph 6.2.1. 

page 261 

Table 2: 
Assessment  of compliance with HICP requirements in the Candidate Countries: 
Initial  coverage 

Candidate Countries' timetable for implementing the 
requirements of initial coverage of the HICP: 

BUL 
CYP  from Jan-1998: compilation of HICPs; 
(data available in spring 1998) 

Eurostat's judgement of compliance 
with respect to initial coverage: 
currently not possible 
likely in 1998 

CZE  1998: re-classification according to COICOP/HICP; 

likely in 2000 

1999: revision of CPI basket; 
from beginning of 2000: compilation of HICPs 

EST  from  1998: allocation of representative items for those HICP 

possible in 2000 

sub-indices which are not yet covered by the national CPI 

HUN  1997: implementation of fixed basket concept; 
1997 -1998: implementation of COICOP/HICP 
LTU  2 years are needed to implement the HICP requirements 
LVA 
POL  1997: implementation of COICOP in the Household Budget 

Survey; 
Jan-1998: implementation of COICOP/HICP and develop 
ment of software for the computation of the HICP; 
Mar-1998: implementing COICOP-based weighting system; 
from  1999: compilation of HICPs 

ROM  not before 1998 

; 
SVK 
SVN  Dec-1998: coverage of all goods and services as defined by 
the initial coverage regulation and implementation of 
COICOP/HICP; 
[from  1999: compilation of HICPs and all sub-indices 

: 

| 

possible in 2000 

currently not possible 
possible in 2000 
likely in 1999 

no plans to revise national CPI before 
2000 
currently not possible 
likely in 1999 

. 

10.  THE HICP - A COMPARABLE MEASURE OF CONSUMER PRICE INFLATION 

10.1.  Improved  comparability 

The HICPs  are  based  on harmonized  concepts,  methods  and  practices  which  make  them  better 
suited  for  comparing  inflation  between  Member  States  than  the  national  CPIs.  As  a  result  of 
the  harmonization  project  also  some  national  CPIs  improved  in  various  aspects  in  quality  for 
measuring  inflation. 

Within  the  frame  of  the  HICP  Council  Regulation,  the  Commission  (Eurostat)  has  set  in  place 
a  series  of  specific  measures  in  the  form  of  Commission  Regulations  introducing  a  common 
classification  (COICOP/HICP),  a common  HICP  coverage,  and  a  series  of  minimum  standards 
such  as45: 

• 

Incorporating  newly  significant  goods  and  services  (e.g.  mobile  phones); 

•  Making  -appropriate  allowance  for  quality  change  in  the  things  consumers  buy  (quality 

adjustment); 

•  Ensuring  that  samples  of prices  are properly  representative; 

45 

More details are given in paragraphs 6.2. and 12. 

page 27i 

•  Using comparable formulae for measuring price changes. 

The  Boskin  report  and  the  BLS46  response  to  it,  gives  support  to  the  achievements  of  the 
harmonization  process.  The  issues  raised by Boskin  were  those  on  which  the  harmonization 
had already focused; most notably quality adjustment,  the basic formula  and keeping  up with 
market developments (new goods and weights). 

Removing the different approaches to owner occupiers, health and education for the first phase 
of  HICPs  was  a  major  step  towards  more  comparable  indices.  The  approach  of  minimum 
standards had a considerable immediate effect  on comparability through banning inappropriate 
practices and removing to  a good  extent  the biases  resulting from them,  such as new goods, 
quality,  missing  prices  and  aggregation  bias  as  well  as  formula,  substitution  and  outlet bias. 
Reducing further remaining biases and errors is considered  as a medium term task that started 
with the first sets  of  compiled  HICP  data.  However,  the  HICPs  will  always  be  subject  to  a 
certain margin of statistical error and unknown biases. 

If it were possible to quantify the bias in a CPI, there would be no bias because the CPI would 
be corrected  accordingly. Until  alternative unbiased measures  can be defined  and  constructed 
the size of any bias is a matter of speculation. There is wide agreement that the main source of 
bias in CPIs arises from the treatment  of quality changes, but the amount of bias is unknown. 
National  CPIs can,  however,  be used  to  investigate  alternative  approaches  to  the  problem  of 
constructing price indices. 

The rules and minimum standards laid down in the regulations  and guidelines  not  only assure 
the comparability,  precision and reliability of HICPs but they result in quality improvements in 
measuring  inflation.  National  CPIs  also  benefit  to  the  extent  that  they  may  adopt  these 
minimum  standards.  For  example  Ireland  has  produced  since  January  1997  a  monthly  CPI 
instead  of the  quarterly  CPI produced  previously.  Luxembourg  is the first Member  State that 
has replaced its national CPI with the HICP, and Greece has launched a new national  CPI that 
is mainly based on the HICP standards. 

With  the  proposed  link  to  the  new  European  System  of  Accounts  (ESA  1995)  through  the 
introduction  of  the  concept  of  "household  final  monetary  consumption  expenditure"47,  the 
HICPs  provide  a  clear  and  unambiguous  concept  for  defining  coverage  and  constructing 
weights and also improve the compatibility with National Accounts. 

10.2.  Comparability  and  coverage 

The comparability  of the HICPs is the  result  of  the implementation  of  a number of  measures 
explained  in detail  in paragraph 6.2.,  however,  the focus  of this section is the coverage  of the 
HICP.  Following  the  launch  of the  HICP,  the  Commission  (Eurostat)  and  statisticians  in the 
Member  States  have  been  criticised  for  not  having  been  able  to  extend  the  coverage  of  the 
HICPs with regard to owner-occupied housing, education and health48. 

The actual  prices faced  by owner-occupiers  for minor repairs and the regular maintenance  of 
the  dwelling  are  already  covered  by the HICP.  However,  imputed  rents  or mortgage  interest 

46 

The Bureau of Labor Statistics is responsible for calculating the US CPI 

See also paragraph 8.1. 

See also paragraph 8.1. 

page 28flb 

payments,  which  are used  in  some  CPIs to  measure  "inflation"  faced  by  owner  occupiers  in 
respect  of  housing,  are  considered  inappropriate  for  international  comparisons  of  consumer 
price  inflation  since  these  are  not  actual  monetary  transactions.  Imputed  rents  are  the 
opportunity costs to owner occupiers of living in their houses rather than a reflection  of actual 
prices faced by them as consumers. These and any other opportunity costs are not regarded as 
part  of  inflation.  Mortgage  interest  is  simply the  cost  of  credit,  and  credit  payments  are not 
normally included in CPIs. The SPC discussed the treatment of owner occupied housing in the 
HICP on  13 March  1997.  Many Member  States were  sympathetic  to  the  idea that the prices 
faced by owner occupiers when acquiring housing should be covered by the HICP, but felt that 
it was premature to proceed with an index of net acquisition  of new  dwellings.  It was agreed 
that discussions on this issue should continue and that further research work  should be carried 
out  before  a final decision  could  be  taken.  A  special  Task  Force  will  be  set  up  in T 998  by 
Eurostat. 

The  effect  of  excluding  most  parts  of  health  and  educational  services  from  the  HICP 
depends  on  how  these  services  are  eventually  measured;  in  particular,  the  way  in  which 
reimbursements are dealt with. Not  all health and educational  services are covered in all CPIs. 
Where they are included not always allowances are made for the fact that consumers are often 
reimbursed.  Some  solutions  have been found  to the extend  that  almost  complete  coverage  of 
health and education will be  achieved  in two  stages,  in December  1998  and December  1999. 
The  inclusion  of  some  items  in  after  1998  reflects  either the  fact  that  no  Member  State  has 
technical  solutions  for  their  treatment  (e.g.  hospital  services:  what  are  the  prices  faced  by 
consumers?)  or that  the  methods  and  practices  must  be  refined  before  comparability  can be 
assured. 

Assuming  that  6%  of  full  coverage,  as  defined  in  terms  of  "household  final  monetary 
consumption  expenditure",  is  missing,  this  matters  only  to  the  extent  that  inflation  in  the 
exclusions  differs  significantly from inflation  in general.  If,  for  example,  the  rate  of  inflation 
given by the HICP is 2.0%, inflation  in the non covered  items would  have to be twice  as high 
in  order  to  change  the  measured  rate  to  2.1%.  If  the  sub-index  for  the  non-covered  items 
evolves  at  a  similar  rate  as  the  all-items  index  then  it  does  not  affect  the  rate  of  inflation 
measured  by  the  HICP.  Although  non-coverage  is  a  drawback  of  the  HICP  it  needs  to  be 
evaluated in the context of the other major achievements of the harmonization process. 

10.3.  Differences  between  CPIs and HICPs 

HICPs  numerically  diverge  from  national  CPI as a result  of  differences  in concepts,  methods 
and practices.  Since national  CPIs and HICPs serve different  purposes, it can be misleading to 
compare  both  indices  directly49.  The  numerical  differences  can  be  positive  or  negative, 
however,  it is not the intention of this réport to  explain or comment  on numerical  differences, 
which was already done by the Commission in its Convergence Report of  199650.. The focus  of 
this  paper  is  the  comparability  of  the  HICPs  and  the  Member  States'  compliance  with  the 
regulatory  framework.  The HICPs constitute the only  comparable basis for assessing  inflation 
convergence  among  Member  States  and  inflation  convergence  will  be  assessed  during  the 
critical  period  before  the  start  of  Stage  III of Economic  and Monetary'Union,  as  required by 
the Treaty,  on the basis  of these  comparable HICPs.  Nevertheless,  since  Article  109  (j) TEU 

See also paragraph 4. 

"Report  on convergence in  the European  Union  in  1996" - COM(96)560 final, published  in European 
Economy, supplement A, No 1  - January 1997 

page 29J 

allows for taking into account "other price indices", national CPIs may, among others, be taken 
into consideration. 

11.  REACTIONS FROM USERS, MEDIA, AND MEMBER STATES 

11.1.  Opinion of the European Monetary Institute fEMTï 

The EMI has stated the following: 
"As a key  user  and  as forerunner  of the European  Central  Bank  (ECB),  the  EMI  has been 
closely  involved  in the preparatory work  for the HICPs through the  consultation  procedures 
laid down in Article 5.3  of the Council Regulation on HICPs and through the participation  of 
EMI technical experts in Eurostat's Working Party. 

Against  the  background  of  the  differing  objectives,  concepts  and  methods  underlying  the 
national  CPIs,  the EMI  regards  the  harmonization  efforts  as  essential  for  the  assessment  of 
convergence in accordance with the Treaty on European Union. HICPs will form the basis for 
the assessment  of price stability convergence  in the  Convergence Report  of the EMI in early 
1998.  In the  short  and medium  term the  focus  is  therefore  on  the  comparison  of  HICPs  of 
individual Member States. However, from the start of  Stage Three of Monetary Union, while 
retaining this role for Member States not participating  in the single currency area,  the HICPs 
will be a central  indicator for the single monetary policy and this implies the use  of the index 
for the Monetary Union area as a whole (MUICP). The measures which have been introduced 
for the purpose of assessing convergence will form a good  statistical basis for the MUICP. At 
the  same  time,  the  use  of  the  MUICP  for  monetary  policy  purposes  may  increase  the 
importance  of considerations  such as the timeliness  of data,  since the data are likely to  be an 
important ingredient in policy analysis each month. 

The harmonization so far achieved appears in general  satisfactory.  The common coverage and 
classification  as well as the detailed publication of sub-indices is an important improvement for 
analytical  purposes.  A  comparable  basic  formula  has  been  established  and  first  measures 
introduced  to  improve  the  comparability  of  methodological  issues  (approaches  concerning 
quality adjustment  and sampling). The EMI has supported the approach to establish minimum 
standards now  and to  introduce  more  comparable  and reliable  methods  in the  medium term. 
Many  of  the  issues  discussed  concern  the  measurement  of  inflation  and  the  reliability  of 
consumer  price  statistics  in  general  and work  in this  field  is  therefore  particularly  welcome 
from  a  monetary  policy  point  of  view.  However,  this  positive  assessment  on  the  progress 
achieved  does  not  imply  that  differences  in  methods  have  been  completely  eliminated. 
Moreover,  the  extension  of coverage to those  parts of consumers'  expenditure which are not 
covered by the initial HICPs is a particular concern of the EMI. 

In sum, the EMI sees the plans for further development of the HICP as a necessary prerequisite 
for  their  use  in  monetary  policy,  without  prejudicing  their  usefulness  for  the  assessment  of 
convergence." 

page 301 

11.2.  Opinion  of the Directorate General for Economic and Financial Affairs  of the 

European Commission (DGID 

DGII has stated the following: 
"As  a  key  user,  DG  H,  the  Directorate  General  for  Economic  and  Financial  Affairs,  has 
persistently insisted on a timely availability of comparable and reliable data for the assessment 
of  inflation  convergence.  DG II therefore  welcomes  that  the  timetable  for  the  launch  of the 
HICPs, as it is laid down in the Council Regulation (EC) No  2494/95  concerning harmonized 
indices of consumer prices, has been met. This has allowed the Commission to use the HICPs 
in  its  recent  official  documents,  and  more  particularly  in  the  Progress  Report  on  the 
implementation  of  the  1996  Broad  Economic  Policy  Guidelines  and  in  the  Commission's 
Recommendation  for  the  1997  Broad  Guidelines  of  the  Economic  Policies  of  the  Member 
States  and  the  Community.  The  "operational"  use  of  the  HICPs  one  year  before  the 
preparation of the  Convergence Report  of  1998  is very  important,  as  it leaves time to  policy 
makers and economic agents to familiarise with this new index. 

The launch of the HICPs must also be considered as a major achievement,  since quality has not 
been  sacrificed  to  timeliness.  The  HICPs,  in  their  current  shape,  show  a  high  degree  of 
comparability across Member States, not only in terms of coverage,  but also in quality terms. 
National  Statistical Institutes (NSIs) have agreed on minimum standards and on good practices 
regarding some key methodological  aspects, like lower level formula or weight updating.  The 
fact  that  the  improvement  in  comparability  and  in  quality  have  gone  hand  in  hand  is  much 
appreciated by the users. 

However» DG II was thwarted  in the  execution  of its tasks by the unavailability  of historical 
series  for  some  Member  States'  HICPs,  in  contradiction  either  with  the  legal  requirements 
induced  by  the  relevant  Regulations  or  with  the  agreement  with  Eurostat.  Although  these 
problems  have  been  solved  since  then,  DG  II  wants  to  express  its  hopes  that  similar 
deficiencies  will  not  occur  again on the  occasion  of the  release  of  amended  HICP  series  (for 
instance when the coverage will be extended). Likewise,  some HICP  series have been subject 
to  significant  revisions  in the  months  following  the  launch  of  the  HICPs.  Although  DG  II is 
well aware that some revisions are unavoidable, NSIs should ensure to do what is necessary to 
minimise the magnitude of potential revisions. 

Regarding future progress, DG II encourages the work initiated by the Working Party in order 
to  extend the coverage  of the HICPs and to improve the statistical  accuracy of both the CPIs 
and the HICPs. Finally, DG II reiterates its attachment to a continued respect of the timeliness 
of  the  HICPs,  as  the  latter  is  crucial  for  users'  efficient  monitoring  of  the  inflation  in  the 
forthcoming EMU, and in the European Union as a whole. " 

11.3.  Summary  opinion  of Member States 

The launch of the HICP was  successful  in all Member States. The main users, i.e.  the Central 
Banks,  ministries  of  finance,  ministries  of  economics,  financial  institutions  and  research 
institutes, have shown great interest in the HICP. Since, in most Member States the main users 
have  been  kept  fully  informed  about  the  progress  of  the  harmonization  project  and  its 
achievements,  it  was  not  difficult  to  explain  to  them  the  differences  in  methodology  and 
concept  between  the  national  CPI  and  the  HICP.  In  addition,  some  Member  States  held 
seminars on the HICP for their main users. 

page 3 U 

In contrast,  the  interest  of the general  public  in this new  measure  of  inflation  was  moderate. 
However,  Member States consider that the situation might change in  1998 when the  decision 
will be taken on the participating countries of the Economic and Monetary Union. 

Some Member States have chosen to keep the HICP and the national CPI as similar as possible 
by  implementing  methodological  improvements  of  the  HICP  also  in  the  CPI,  and  by 
introducing goods and services which were added for the compilation of the HICP also in the 
CPI. Other Member States try to keep the HICP and the national CPI as distinct as possible to 
emphasise that they serve different purposes. 

Luxembourg was the first country which replaced the  national  CPI by the HICP.  The use  of 
the  HICP  as  a  measure  of  inflation  was  never  questioned.  However,  there  were  long 
discussions  on whether the HICP  should be used  as the national  CPI,  and therefore  for  wage 
indexation. 

In all  other Member  States  there  have  so  far been no  particular  difficulties  in introducing an 
additional  price  index,  since  it  was  stressed  that  the  HICP  was  primarily  for  international 
comparisons  of  inflation,  and  that  the  national  CPI  remained  the  best  indicator  for  national 
purposes.  In  Greece,  Ireland,  Italy  and  Austria  the  launch  of  the  HICP  coincided  with  the 
launch of the updated national  CPI. Ireland successfully  moved from a quarterly to  a monthly 
cycle  for  compiling  the  national  CPI.  Greece  reported  that  the  publication  of  the  HICP 
strengthened  confidence  in  the  revised  national  CPI.  However,  there  were  discussions  in 
Greece  as  to  whether  the  HICPs  instead  of  the  CPIs  should  be  used  as  deflators  for  many 
economic  and  monetary  variables,  which  might  lead  to  revised  figures  concerning  various 
international comparisons. 

12.  COMPLIANCE AND QUALITY CONTROL 

Article  12  of  the  HICP  Council  Regulation  establishes  indirectly  an  obligation  to  monitor 
compliance,  by empowering the  Commission  (Eurostat) to  request  information  from Member 
States that is necessary to evaluate: 

(a) 

the compliance with comparability requirements and 

(b) 

the quality of the HICPs. 

Furthermore, all specific measures laid down in Commission Regulation require Member States 
to  provide  information  sufficient  to  monitor and control  quality.  The  general  approach  in the 
Commission Regulations  is to  specify  the outputs, leaving it to Member States to  decide  how 
to  achieve  them51.  This  approach  implies  the  need  for  an  effective  compliance  monitoring 
system,  in order to assure that Member States are in practice fulfilling  the letter and the spirit 
of  the  various  regulations  and  guidelines.  The  Commission  may,  however,  require  more 
information  than Member  States would  require themselves  in order to  ensure that the  indices 
are reliable. 

The following  paragraphs  12.1  to  12.8. of this report summarise the results of a first round  of 
compliance  monitoring,  whilst  discussions are proceeding  on how best to  provide  a system  of 
independent statistical  checks so as to assure a high quality of the HICPs, and to set in place a 
monitoring  system  in line with the practice existing in many Member  States. The  Commission 
(Eurostat)  is  also  considering  whether  further  mechanisms  are  required  to  ensure  the  quality 

See also paragraph 5. 

page 32! 

and  integrity  of  this  important  new  economic  indicator,  one  option  being  to  establish  an 
independent advisory body. 

The compilation of HICPs is to a large extent based on the national CPIs. For those aspects of 
the index construction which have the greatest potential for introducing  non-comparability the 
HICPs are based on harmonized concepts, methods and practices, which make the HICPs the 
best  measures for  comparing  inflation  between  Member  States.  The  aim of  this  section  is to 
assess the improvements in comparability that have been delivered with the introduction of the 
HICPs.  Paragraphs  12.2.  to  12.8.  describe  the  improvements  as  required  by  the  existing 
legislative framework of the HICP, whereas paragraph 12.1. outlines improvements beyond the 
minimum required by the regulations. 

12.1.  Specific  changes made by Member States 

The harmonization project and the compilation of the HICP required considerable resources in 
terms of personnel  and computing  equipment52.  Several  Member States  increased the number 
of professional  and other staff,  and/or enhanced  their computer  system to  compile  the HICP 
from  January  1995,  as  for  example  Ireland,  Luxembourg,  Sweden  and the  United Kingdom. 
Austria introduced in the price collecting offices  at the beginning of  1997 special  software  for 
the data collection and transmission. 

In order to provide time series of HICPs which are as comparable as possible, Member States 
calculated  retrospective  data  for  the  HICP.  All  Member  States  provided  monthly  HICPs 
starting with the index for January  1995, and all but France and the United Kingdom compiled 
the HICP sub-indices from January 199553 using the classification  COICOP/HICP54. However, 
Ireland  and the United Kingdom  provided the retrospective  data only from the publication  of 
the August figures on 7 October  1997.  The provision  of retrospective  data required,  in some 
Member States, the estimation of historic prices and weights for a number of items which were 
not covered by the national  CPI. Furthermore,  Greece, Luxembourg,  Austria, Finland, and the 
United  Kingdom  introduced  the  geometric  mean  formula  for  the  calculation  of  elementary 
aggregates  for  the  indices  prior  to  January  199755.  Several  Member  States  introduced  or 
planned to introduce the COICOP classification for their national  CPI which will be welcomed 
by many users as the components of national CPI do not conform to a common classification. 

Greece,  Austria,  Portugal,  and the United Kingdom adjusted their geographic  and population 
coverage  in time for the  launch  of the HICP,  thereby  partly  anticipating  a draft  Commission 
Regulation providing a harmonized definition of the geographic and population coverage of the 
HICP  .  Since  Greece  includes  rural  areas, Portugal  covers  the  Azores  and Madeira,  and the 
United Kingdom  covers the top 4% of earners and also  pensioners mainly dependent  on state 
benefits,  the  HICPs  launched  in  March  1997  refer  to  all  households,  regardless  of  income, 
resident  in  any  part  of  the  economic  territory  (rural  and  urban).  Austria  moved  to  the 
"domestic concept" for the HICP by including the expenditure by foreign visitors in Austria. 

52 
53 

55 

See also paragraph 2. 

See also Table to 6.4. 

See also paragraphs 6.2.1. and 6.2.7. 

See also paragraph 12.6. 

See also paragraph 8.3. 

page 331 

Several Member States took account of new goods and services such as mobile phones when 
constructing their HICP. Belgium, Denmark, Italy, Luxembourg, and Austria introduced  new 
weights,  earlier than previously planned, in time for the launch of the HICP. The Netherlands 
decided to move over to an annual updating of the weights used for compiling their HICP and 
the national  CPI starting from December  1997.  The inclusion of new goods  and services and 
the use  of more up-to-date  weighting information  should produce  more  reliable and relevant 
indices57. 

In Germany where the data collection and quality control is managed to  a large extent by the 
regional  offices  (Statistische  Landesâmter),  a  system  has  been  introduced  which  allows  the 
Federal  Statistical  Office  (Statistisches  Bundesamt)  to  receive  microdata  from  the  regional 
offices  in order to  compile the statistical  information  required by Eurostat  to  demonstrate the 
quality of thé HICP under compliance monitoring. 

12.2.  Coverage 

12.2.1. Interim indices launched 29 February  1996 

During  1996 the Commission (Eurostat) published each month the interim indices. They were 
used by the Commission (DGII) and the European Monetary Institute in their first convergence 
reports to the Council  in  1996.  Interim indices are available for the time period January  1994 
to  December  1996  for  all  EEA  countries  and  Switzerland.  'As  required  by  the  Council 
Regulation they were replaced58 by the HICPs starting with the index for January 1997. 

The interim indices59 provided a better basis of comparison of consumer price inflation than the 
national  CPIs  because  they  were  adjusted  to  make  the  coverage  of  goods  and  services  as 
similar  as  possible.  Certain  categories  of  expenditure  were  excluded,  others  which  are  not 
covered by some national CPIs were included for all Member States. The combined weight  of 
these inclusions and exclusions was about 16% of total consumer spending. The exact amounts 
varied from country to country,  details for the EU Member States are given in Tables 4  and 5 
below.  Apart from those differences  in the coverage of goods and services, the interim indices 
were constructed  by exactly the  same methods as used by the national  CPIs from which they 
were derived. 

Table  3  highlights  the  difference  in the  coverage  of  goods  and  services  between  the  interim 
indices and the national CPIs. The table is taken from Eurostat's press release No  15/96  of 29 
February  1996  for the  launch of the interim indices, corrected  regarding the  estimates  for the 
United  Kingdom.  It  indicates  that  the  interim indices  covered  about  84% of  the  goods  and 
services included in the national CPIs, with a maximum of 92% identity in coverage in Greece 
and a minimum of 75% in the Netherlands. The main differences  in item coverage results from 
the treatment of owner occupiers in respect of housing60. The variance in the weights for health 
and  education,  which  accounts  for  11%  of  the  French  CPI  and  less  than  1% in  the  United 
Kingdom's,  reflects  not  only  major  institutional  differences  between  countries  in the  ways in 

57 

58 

59 

60 

Details are given in paragraphs  12.3. and 12.5. 

With the exception of Switzerland which produced an interim index but does not compile a HICP 

See paragraph 6.1. 

See also paragraphs 8.1. and 10.2. 

page 34i 

which consumers pay for such services, but also differences  in the ways these items are treated 
in the CPI. 

Table 3: 
Expenditure excluded from national CPIs when computing the interim indices 
- approximate weights per 1000 (January 1996 61) -

Interim Index 
+ Owner occupied housing 
+ Health and Education 
+/- Others 
= national  CPI 

B 
822 
40 
56 
82 
1000 

DK 

821 
126 
36 
17 
1000 

D 
826 
92 
45 
37 
1000 

EL 
916 
-
76 
8 
1000 

E 
913 
17 
44 
26 
1000 

F 
875 
-
112 
13 
1000 

IRL 

846 
40 
43 
71 
1000 

I 
900 
-
78 
22 
1000 

L 
883 
-
85 
32 
1000 

Interim Index 
+ Owner occupied  housing 
+ Health and Education 
+/- Others 
= national  CPI 

NL 

749 
118 
12 
121 
1000 

A 
871 
9 
46 
74 
1000 

P 
876 
61 
39 
24 
1000 

FIN 

774 
100 
41 
85 
1000 

S 
793 
160 
25 
22 
1000 

UK 

796 
120 
9 
75 
1000 

IS 
750 
108 
43 
99 
1000 

N 
803 
115 
31 
51 
1000 

The following  Tables 4 and 5, which are also taken from Eurostat's press release No  15/96  of 
29 February  1996, give details of the categories which have been excluded from national CPIs 
and these where additions have been made. They include only information for the EU Member 
States. 

Table 4: 
Categories which have been added to national CPIs when computing the interim indices 

Alcoholic beverages 
Tobacco 
Services for the routine 
maintenance and  repair of 
dwellings 

B  DK  D  EL 

E  F  IRL 

I 

in 

in 

NL  A  P  FIN  S 

L 
in 
in 

ll'KJ 
1 
1 

i 
i 

The  reference  expenditure  is  the  total  expenditure  covered  by  the  national  CPI  of  each  Member  State 
which  is set as a weight  of  1000. The weights given for the interim  index and the included or excluded 
categories are those used for the compilation of the index in January  1996 

page35i 

Table 5: 
Categories which have been excluded from national CPIs when computing the interim indices 

B 

DK 
out 

D 
out 

EL 

E 

F 

IRL 

I 

L 

A 

NL 
out 

p 
out 

FIN 

S 
out 

UK 

Imputed rents of owner 
occupiers 
Mortgage interest payments 
Refuse disposal and sanita 
tion services (payment as tax 
regardless of consumption) 
Insurance in respect of the 
dwelling 
Water supply (payment as tax 
regardless of consumption) 
Health 
Package holidays 
and expenditure abroad 
Travel insurance 
Taxes related to die use of a 
car, road taxes and tolls 
Car insurance 
Drivers licence fee 
Education 
Social services 
Financial services n.e.c. 
Other services n.e.c. 

out 

out 

out 
out 

out 

out 

out 
out 
out 
out 

out 

out 

out 

out 

out 

out 
out 

out 

out 

out 

out 

out 

out 

out 

out 

out 

out 

out 
out 

out 
out 

out 
out 

out 

out 
out 

out 
out 

out 
out 

out 
out 

out 
out 

out 
out 

out 
out 

out 

out 

out 

out 
out 

out 
out 

out 
out 
out 

out 

out 

out 

out 

out 

out 

out 

out 

out 

out 
out 
out 

out 
out 

out 
out 

out 

out 
out 

out 

out 
out 

out 
out 

out 
out 

out 
out 
out 

out 
out 

out 

out 
out 
out 

oat 

out 

out 
out 
out 
out 

out 

out 

out 

out 
out 

out 
out 
out 
out 
out 
out 

out 
out 

out 
out 
out 

out 
out 

out 
out 

out 
out 

out 
out 

out 

out 

12.2.2.  HICPs launched  7 March  1997 

As required by the Council Regulation,  on 7 March  1997 the Commission (Eurostat) launched 
the first set  of  HICPs  for  all  EU  Member  States,  Iceland  and Norway62.  They  replaced  the 
interim  indices  as the best  measure for  comparing  consumer  price  inflation  between  Member 
States,  and  are  used  in  the  convergence  reports  of  the  EMI  and  the  Commission  to  the 
Council.  The  HICP  is  a  new  and  different  index  for  measuring  inflation  and  not  just  an 
"extended  interim index".  In contrast to  the interim indices,  which were  entirely based  on the 
national CPIs and only adjusted to make the coverage of goods and services as comparable as 
possible,  the  HICPs  are  also  (and  in  particular)  harmonized  with  respect  to  certain 
methodological  aspects of the index construction. 

The additions to coverage as compared with the interim indices include in particular insurances 
for  cars  and  dwellings,  package  holidays,  banking  services,  several  administrative  fees  and 
charges,  educational  goods  and services  such as  evening  classes,  and  health goods  which are 
obtainable without  prescription63.  The combined weight  of these  additions accounts for  about 
5% of total  consumer  spending  on  average  across  Member  States,  with  a minimum  of about 
2% in Portugal  and a maximum of about 7% in Iceland. Details are given in Table 6. It shows 
consumers' expenditure  on the  main categories  of  goods  and  services  which  were  introduced 
("added to the interim indices") for the construction of the HICPs, and thus reflects the weight 
of these sub-indices in each Member State's HICP. 

See paragraph 6.2.; details about the available data are given in paragraph 6.4. 

See also paragraph 6.2.1. 

page 36l 

Table 6: 
Sub-indices introduced for the compilation of the HICPs 
- approximate weights per 1000 (Annual 1996 M) -

Health products - paid by the 
consumer and not reimbursed 
Package holidays 
Education - commonly paid by 
consumers in Member  States 
Insurance 
Banking services n.e.c. 
Other services n.e.c. 
Sum  of additions: 

B 
8,7 

DK 
7,4 

D 
8,5 

EL 
11,9 

E 
8,4 

F 
4,8 

IRL 
6,0 

I 
16,0 

L 
2,8 

31,4 
• 

12,6 
3,3 

16,7 
4,6 

2,6 
13,7 

7,8 
1,2 

1,4 
3,7 

30,6 
6,0 

0,0 
8,6 

50,0 
3,4 

8,7 
3,5 
11,0 
63,3 

3,5 
20,4 
13,7 
60,9 

5,7 
2,0 
5,3 
42,8 

11,6 
• • 
18,1 
57,9 

4,0 
o,i 
8,1 
29,6 

11,7 
7,0 
10,5 
39,1 

2,5 
1,1 
3,4 
49,6 

1,8 
3,2 
9,5 
39,1 

5,5 
0,3 
7,0 
69,0 

Health products - paid by the 
consumer and not reimbursed 
Package holidays 
Education - commonly paid by 
consumers in Member States 
Insurance 
Banking services n.e.c. 
Other services n.e.c. 
Sum  of additions: 

NL 
7,6 

A 
4,1 

P 
5,6 

FIN 
11,2 

S 
12,1 

UK 
7,0 

IS 
9,2 

N 
7,1 

16,4 
3,0 

16,8 
3,9 

3,2 
0,8 

22,0 
1,3 

9,5 
1,7 

30,0 
n,o 

24,5 
0,0 

20,2 
1,8 

9,8 
0,3 
9,0 
46,1 

7,0 
2,1 
1,0 
34,9 

5,3 
0,2 
0,3 
15,4 

3,7 
0,9 
2,2 
41,3 

7,3 
1,5 
3,1 
35,2 

6,0 
2,0 
5,0 
61,0 

6,6 
13,8 
16,4 
70,5 

5,3 
• • 
• • 
34,4 

12.2.3. HICP versus CPI coverage 

The aim of the HICP is to measure inflation faced by consumers. The concept "household  final 
monetary consumption expenditure" defines both the goods and services to be covered by the 
HICP and the price concept to be used: prices net of reimbursements, subsidies, and discounts. 
The concept is laid down in a draft  Commission Regulation amending Commission Regulation 
(EC) 1749/96 with regard to coverage65. 

"Household final monetary consumption expenditure" refers only to monetary transactions and, 
therefore, neither includes income in kind, as for example agricultural products grown for own 
consumption, nor services of owner occupied dwellings. In particular, the expenditure faced by 
owner  occupiers  when  acquiring  housing  expressed  as  imputed  rents  or  mortgage  interest 
payments  are not  regarded  as part  of the inflationary  process  and  hence  excluded  from  the 
HICPs.  Consideration  is  being  given  to  the  inclusion  of  the  net  acquisition  prices  of  new 
dwellings. However, until a satisfactory  solution for the services of owner occupied dwellings 

64 

The reference expenditure is the total expenditure covered by the HICP which is set as a weight of 1000. 
The HICPs for the Member States are derived from the national  CPIs using different  weight,  price and 
index  reference  periods  and  different  frequencies  of  updating  weights.  In  order  to  make  the  weights 
comparable between Member States and for the aggregation to the EICP they were re-referenced  to  1996 
(average level of prices for the year) 

65 

See paragraph 8.1. 

page 31a 

can  be  found,  such  expenditure  is  by  definition  excluded  from  "household  final  monetary 
consumption expenditure". 

Table 7 gives rough estimates for  what is already  covered  by the HICP  as of January  1997, 
what  remains to be added  in  1998 and  1999, and what is out  of the scope  of the HICP and 
hence not considered  as relevant for  internationally comparable measures of inflation,  though 
covered by some national CPIs. The HICPs of the Member States currently cover more than 
90%  of  "household final monetary  consumption  expenditure".  The  remaining  10%  will  be 
added by December 1999, at the latest. 

About 6% refer to goods and services which are not yet covered by the HICP because either 
no Member State has technical solutions for their treatment or the methods and practices must 
be  refined  before  comparability  can  be  assured.  Complete  item  coverage  (as  far  as  it  is 
possible) will be achieved  in two  stages, in December  1998  and December  1999. The main 
extensions of coverage concern health, education, social protection services such as retirement 
homes, and insurances66. 

Up to about 4% would be added to the coverage of some of the HICPs because of adjustments 
to  the  geographic  and  population  coverage,  which  is  defined  in  a  draft  Commission 
Regulation amending Commission Regulation (EC) 1749/96 with regard to the geographic and 
population  coverage67.  The  HICP  refers  to  "household  final  monetary  consumption 
expenditure" which takes place on the economic territory of a Member State. In particular, all 
Member States, except for Denmark and Italy who already include such expenditure, need to 
cover  the  expenditure  df  persons  living  in  institutions.  Belgium,  Greece,  Spain,  Ireland, 
Luxembourg,  the Netherlands,  Portugal, Finland, the United  Kingdom,  Iceland,  and Norway 
need to include the expenditure by foreign visitors and exclude expenditure of residents whilst 
in  a  foreign  country.  Other  Member  States  are  already  using  this  "domestic  concept".  The 
additional  weight  of  about  20%  for  Luxembourg  reflects  the  importance  of  cross-border 
shopping.  The  negative  weight  for  Norway indicates  that  residents  spend  more  abroad  than 
foreign  visitors  in Norway.  Belgium  and  Spain  cannot  at  present  provide  estimates  for  the 
additions to population coverage. 

* 

The  two final rows  in  Table  7  illustrate  the  difference  between  "household final monetary 
consumption  expenditure" and the national CPIs. The weights differ  widely between Member 
States; some  explanations  are given  in the footnotes.  The figures  are rough  estimates which 
may change if Member States decide to take account of the additions to the HICP also in their 
national CPI. No single CPI or set of CPIs should be taken as a model for what HICPs should 
cover. 

Note:  HFMCE = Household final monetary consumption expenditure; 

for Luxembourg the HICP and CPI are identical. 

66 

67 

Details are given in paragraph 8:1. 

See paragraph 8.3. 

page 38J 

Table 7: HFMCE covered by the HICP compared to national CPI coverage 
- approximate weights per 1000 (Annual  1996a) 

HICP initial coverage as of Jan-97 
Additions to items coverage in 
Dec-98 and Dec-99 
Additions to population coverage 
by latest Dec-98 
HICP final coverage as of Dec-99 
•  = HFMCE 
Expenditure covered by: 

B 
952 
48 

DK 
903 
31 

D 
953 
45 

EL 
875 
56 

E 
954 
46 

F 
847 
153 

IRL 

no esti 
mate 

66 

2 

69 

no esti 
mate 

0 

I 
973 
27 

L 
725 
80 

0 

195 

1000 

1000 

1000 

1000 

1000 

1000 

1000 

1000 

1000 

a) HFMCE but excluded from CPI 
b) CPI but excluded from HFMCE 

0 
l ld 

82 b 
114e 

2 
114* 

69 
0 

0 
5 

87 e 
0 

0 
48  8 

— 
— 

HICP initial coverage as of Jan-97 
Additions to items coverage in 
Dec-98 and Dec-99 
Additions to population coverage 
by latest Dec-98 
HICP final coverage as of Dec-99 

= HFMCE 
Expenditure covered by: ^ 

NL 
886 
70 

A 
960 
40 

P 
943 
49 

FIN 
930 
40 

S 
896 
96 

UK 
917 

IS 
908 
42 

N 
937 
68 

44 

0 

8 

30 

8 

83 

50 

-5 

1000 

1000 

1000 

1000 

1000 

1000 

1000 

1000 

a) HFMCE but excluded from CPI 
b) CPI but excluded from HFMCE 

84 
173 k 

132h 
83  * 

0 
77 m 

0 
0 

0 
165° 

124* 
96° 

0 
92 p 

25J 
100 q 

The  reference  expenditure  is  household  final  monetary  consumption  expenditure  which  should be 
covered by the HICP from December  1999. This  is set as a weight  of  1000. The weights  are rough 
estimates which refer to the average price level of the year 1996 

Package holidays, fees for driving licence, arms permission, hunting licence and passport 

Domestic services, legal services, insurance, used cars, administrative fees 

Car tax and tax to put a vehicle into traffic for the first time ("BIV/TMC") 

Imputed rents 

Imputed rents, car tax 

Health provided by social security, games of chance 

Expenditure by foreign visitors in Austria 

The HICP covers the whole population  while the CPI excludes the top 4% of earners and pensioners 
mainly dependent on state benefits 

Financial services 

Imputed rents, taxes for local services 

Games of chance, car tax 

Imputed rents 

Mortgage interest and other items in owner-occupied housing, games of chance 

Mortgage interest, depreciation, taxes for local services, games of chance 

Imputed rents and games of chance 

Imputed rents, health, education and insurance on a gross basis 

page 391 

12.3.  Weighting 

12.3.1.  Quality of weights 

No specific  measures relating to weights were required  of Member  States for the launch  of the 
HICP.  However,  Belgium,  Denmark,  Italy,  Luxembourg,  and  Austria  have  updated  their 
weights earlier than planned  in time for the launch of the HICP, thus  anticipating  requirements 
for  minimum  standards  for  reliability  and  relevance  as  laid  down  in  a  draft  Commission 
Regulation concerning minimum standards for the quality of HICP weights  . 

Denmark  introduced  new  weights  in  October  1996.  They  are  used  for  the  calculation  of  the 
HICP and the national CPI, and were used for the computation  of the interim indices. The new 
weights are based on National  Accounts figures  and the Household Budget  Survey of 1994. 

In January  1997, new weighting  schemes were introduced  by Belgium based  on the Household 
Budget  Survey  of  1995-1996,  by  Ireland  based  on  the  Household  Budget  Survey  of  1994-
1995,  by  Italy  based  on National  Accounts  data  for  1995,  and  by  Luxembourg  based  on  the 
Household  Budget  Survey  of  1993. Austria's  consumption  pattern  is based  on  the  Household 
Budget  Survey  and  National  Accounts  data  for  1993/94  and  adjusted  with  the  help  of  the 
preliminary accounts for  1995. 

12.3.2. Weight  reference  period 

Given  that  the  HICPs  are  derived  from  national  CPIs  they  have  different  weight  reference 
periods  and  different  frequencies  of updating weights.  The weight  reference  period  is the time 
period  of expenditure or consumption to which the weights used for  compiling the HICPs  refer 
for  the  months  of  1997.  It  ranges  from  1989/1990  to  1995/1996  depending  on  the  Member 
State. 

The  majority  of  Member  States  update  weights  every  five  years.  From  1998  they  will  be 
required  to  adjust  weight  every  year,  if  there  are  any  significant  changes  in  expenditure 
. The Netherlands  decided  to  move to  an annual base year  revision  for  the HICP  and 
pattern 
the national  CPI  starting from  December  1997. Hence, together  with France,  Sweden,  and  the 
United  Kingdom,  the  Netherlands  will  compute  a  chain  index  with  annual  weight  updating. 
Denmark  and Luxembourg  are also considering to  annually update their weights,  however  not 
before December  1998. 

Table 8 gives an overview  of the weight  reference  periods  and  update  frequencies  used  for  the 
compilation  of the HICP  in  1997: 

'" 
(,° 

Sec also paragraph 8.2. 

For more details see paragraph 12.4. 

page 40i 

HICP weight reference  periods and update frequencies in 

1997 

Table 8: 

Weight  Reference 
Period of the HICPs 
in 1997: 
1995 -  1996 
1994 
1991 
1994 
1990-  1991 
1995 
1994 
1995 
1993 
1990 
1993/1994 -  1995 
1989-  1990 
1990 
1996 
Jul-1995-Jun-1996 
1995 
1993 - 1995 

B 
DK 
D 
EL 
E 
F 
IRL 
I 
L 
NL 
A 
P 
FIN 
S 
UK 
IS 
N 

Planned next 
weight  reference 
period: 

To be introduced  in 
/ starting with the 
index for: 

Annual  updating 
("chain  index"): 

1995 
1998 - 1999 

Dec-1998/Jan-1999 
Dec-2000/Jan-2001 

1996 
1999 

1995 
1995 

Dec-1997/Jan-1998 

X 

Dec-1998/Jan-1999 
Dec-1997/Jan-1998 

[xfromDec-1997] 

1994-  1995 
1995 
1997 
Jul-1996-Jun-1997 
2000 
1994-  1996 

Dec-1997/Jan-1998 
Dec-1997/Jan-1998 
Dec-1997/Jan-1998 
Jan-1998/Feb-1998 
Dec-2001/Jan-2002 
Dec-1997/Jan-1998 

X 

X 

X 

When  presenting  the  HICP  Eurostat  "re-references"  or  "price-updates"  the  weights  of  all 
Member  States to  1996 (average  of the year), and  subsequently to December  1996, December 
1997,  December  1998,  etc.70.  Hence,  the  movements  in  the  HICP  and  its  sub-indices  is 
expressed  by  reference  to  the  average  level  of prices  in  1996,  and  subsequently  to  December 
1996, December  1997, December  1998, etc. This price updating is a re-scaling  exercise which 
does not change the weight  reference year and does not effect  the measured  rate of inflation. 

12.4.  Sub-index  weights 

Each  month  Member  States  transmit  the  HICP  and  its  sub-indices  to  the  Commission 
(Eurostat).  The  sub-indices  are based  on the  classification  COICOP/HICP71.  They  are  needed 
to  analyse  the  sources  of  inflationary  pressure  and  are,  hence,  published  monthly  by  Eurostat 
alongside the HICP. 

Member  States also transmit  the sub-index weights used  in the computation  of the HICP  to the 
Commission  (Eurostat) to a degree of detail of at least  1  in  1000. The weights assigned  to  each 
category of COICOP/HICP vary from  country to country depending on the relative  importance 
of  consumers'  expenditure  on  each  good  or  service  in  each  Member  State.  There  is  no 
"uniform  basket" applying to all Member States. 

Sec also paragraph 6.2.8. 

Sec paragraphs 6.2.1. and 6.2.7. 

page 4 U 

Table  15 in the annex to this document is an extract of Eurostat's database "NEWCRONOS"72 
giving the weights  for all sub-indices from all  Member  States.  The  weights  refer  to  the year 
1996,  i.e.  the  weights  dating from the  weight  reference  period  of  each  Member  State  were 
"price-updated"73 and expressed by reference to the average level of prices in 1996. 

The weights  shown for the sub-indices in the Table  15 differ  widely between Member States, 
reflecting  differences  in the  relative  importance  of  consumers'  expenditure  on  each  group  of 
goods  and services. However,  the weights  also  reflect  differences  between  Member  States in 
the weight reference period and the frequency  of updating the weights.  A weight for a certain 
item reflects the consumption  of that item in the weight  reference  period which may differ by 
up to five years. For most items, such as food  or housing, five year old weights might be good 
estimates  reflecting  current  consumers'  expenditure.  However,  for  certain  items  which  are 
significantly  losing or gaining in importance,  such as data processing  equipment, five year old 
weights might not correctly capture their relative importance. The weights for example for data 
processing  equipment  (COICOP/HICP  09.1.3.)  would  probably  not  differ  so  widely  between 
Member  States  (from  0.2%o to  6.4%o) if the  increased  demand  for  PCs  had  been  taken  into 
account.  Additionally,  since  the  prices  for  data  processing  equipment  are  decreasing,  the 
expenditure weights expressed by reference to the average price level of 1996 are lower than in 
the weight reference period. 

From  1998  Member  States will  be  required  to  review  their weights  every  year  and to  adjust 
them  for  significant  changes  in  the  expenditure  pattern,  if  the  draft  Commission  Regulation 
concerning minimum standards for the quality of HICP weights is adopted74.  This will  remove 
most  of  the  non-comparability  between  HICPs  which  arises  purely  from  methodological 
differences  in  weighting,  i.e.  the  difference  between  annual  and  less  frequent  base  year 
revision75. 

As  part  of the  compliance  monitoring  the  Commission  (Eurostat)  has  asked  several  Member 
States to verify  and if necessary correct their weights for some sub-indices which seemed  to be 
either very  low  or very  high  as  compared  to  other Member  States' data.  The  analysis  of  the 
differences  in  the  weighting  pattern  of  Member  States  also  indicated  that  the  treatment  of 
certain  goods  and  services  in  the  HICP,  as  for  example  package  holidays  (COICOP/HICP 
09.4.), might be an issue for future harmonization. 

12.5.  Newly significant  goods and services 

From  January  1997  Member  States  are  required  to  make  provision  to  identify  goods  an J 
services which become a significant  part of consumption and are not yet covered by the HICP 
The threshold  is defined  as a sales volume  of over  one  part per thousand  of total  consumers' 
expenditure  in  the  Member  State.  The  Commission  (Eurostat)  will  facilitate  the  process  by 
exchanging  information  about  "newly  significant  goods  and  services"  introduced  in  other 
Member  States'  HICPs.  The  aim  is  firstly  to  maintain  the  relevance  of  the  HICP  by  taking 
account of market developments,  and secondly to keep the HICPs broadly in step with respect 
to  up-to-dateness  in order to  ensure  comparability76.  However,  it  is  not  easy  to  define  which 

2 

73 

75 

70 

See also paragraph  6.4. 

For explanation  see paragraphs  6.2.8. and  12.3.2*. 

See paragraph  8.2. 

Details arc given  in paragraph  12.3.2. 

See also paragraph  6.2.2. 

page 42,1 

good  or  service  is newly  significant,  which  is  a  new variant  of  an  already  existing  item,  or 
which item was included in the HICP to improve representativity. 

Table 9 lists newly significant  items which were included in the HICP of at least one Member 
State for the first time in 1997 and reported to the Commission (Eurostat): 

Table 9: 
Newly significant goods and services since January 1997 

Pay-TV 
Subscription to the Internet 
Mobile phones and charges 
Fax-phone  (answering  machine  or  service 
connection with a phone line) 
Modem 
Printer 
Home computer 
CD-ROM educational games/ games 
Computer games 
Unformatted PC-diskette 
Concentrated washing powder 
Satellite antenna 

12.6. Elementary aggregate formula 

Throwaway camera 
Rear window brake lights 
Bicycle saddle 
in Artificial sweetener 

Ecological products (milk, butter,  flour) 
Ice cream cakes and bars 
Special milk, e.g. vitamin enriched 
Low fat "cream" (15%) 
Margarine with lower cholesterol 
Light wine (4.6% alcohol) 
Lemonade with alcohol (< 5% alcohol) 
Kiwi fruit 

For the calculation  of the elementary  aggregates in the HICP Member  States  are allowed  to 
use of the ratio of either arithmetic or geometric mean prices, but not the arithmetic mean of 
price  relatives77.  Eight  countries  were  required  to  change  their  formula:  Denmark,  Greece, 
France,  Italy,  Luxembourg,  Austria,  Finland,  and  the  United  Kingdom.  All  except  Italy 
introduced the geometric mean; Italy changed to the ratio of arithmetic mean prices. Denmark 
has  a  derogation  up  to  September  1997  on  the  grounds  that  it  requires  a  "significant 
to  its  statistical  system"78,  but  will  then  introduce  the  geometric  mean 
adjustment 
retrospectively  starting with the index for January  1997. All countries except  for  Austria and 
the United Kingdom introduced the change in formula also for their national CPIs. 

In  order  to  improve  comparability  Greece, Luxembourg,  and  Austria  applied  the  geometric 
mean formula  retrospectively starting with the index for January  1995; Italy, Finland,  and the 
United Kingdom used the new formula from January 1996. 

France has chosen a stepwise procedure for moving to the geometric mean for  heterogeneous 
products,  which  account  for  about  one  third  of  all  elementary  aggregates  included  in  their 
HICP. Half the changes were carried out by January  1997, hence about  18% of.the HICP is 
currently calculated using the geometric mean. The remaining changes to the geometric mean 
will be carried out in January 1998 and January 1999. Sweden is using the ratio of standardised 
mean  prices  which  is  a variant  of the  geometric  mean.  Both  these  Member  States  need  to 
demonstrate by the end of 1997 that their formula leads to comparable results in the sense that 

See also paragraph 6.2.5. 

Article 5 (2) of Council Regulation (EC) No 2494/95 

page 4 

the  effect  on  the  HICP  is  less  than  one  tenth  of  one  percentage  point  on  average'in  1997 
against  1996. 

For the  calculation  of the  elementary  aggregates  in the HICP  eight  Member  States  are  now 
using the geometric mean or a close variant, eight are using the ratio of arithmetic mean prices, 
and France a combination.  However,  Portugal will  move to the geometric mean starting with 
the index for January 1998. 
Five Member  States estimated  the  effect  of the  change in formula  on the HICP  as  about 0.1 
percentage points over a period of  12 months. In the United Kingdom the introduction of the 
geometric mean reduced inflation by 0.5 percentage points on average. 

Table 10 gives an overview of the elementary aggregates formula used and the changes carried 
out in Member States: 

page 44] 

Table 10: 
Computation of elementary aggregates in the HICP 

Estimated effect  on 
the HICP over a 
period of 12 
months in 
percentage points: 
— 

estimate not yet 
available 
-  derogation 
— 

-0.1 

— 
-0.1 

New  formula 
was/will be 
introduced  in the 
CPI: 

— 
yes, planned 
starting with  index 
for early  1998 
— 

yes, starting with 
index for Jan-1994 
— 
yes 

New formula  was 
introduced  in the HICP 
staring with the index 
for: 

— 
Jan-1997 
-  derogation 

— 

Jan-1995 

— 
Jan-1997: 
half of the changes to 
the GM were done; 
18% of the index is 
calculated using GM; 
Jan-1998, Jan-1999: 
further  changes to GM 
— 
Jan-1996 

Jan-1995 

_ 

Jan-1995 

Formula used in the 
HICP is the ratio of 
arithmetic mean prices 
(RAM) or geometric 
mean (GM): 
RAM 

GM 
-  derogation 

RAM 
GM 

RAM 
RAM for  homogenous 
products (1/3), 
GM for  heterogeneous 
products (1/3), 
other formula  for  fresh 
products, complex 
prices and tariffs  (1/3) 
RAM 

RAM 

GM 

RAM 
GM; 
RAM for certain  items 
such as  fruit, 
vegetables, and  rents 
RAM 

GM 

variant of the GM 
(ratio of standardised 
mean prices) 
GM 
GM 

For the 
computation of 
the HICP the 
formula  for EA 
was changed: 
no 
yes, 
but derogation 
until  Sep-1997 
no 
yes 

no 
yes, 
progressively  for 
heterogeneous 
products 

no 

yes 

.  yes 

no 
yes 

no 

yes 

no 

yes 

yes 

no 

B 
DK 

D 
EL 

E 
F 

IRL 
I 

L 

NL 
A 

P 

FIN 

S 

UK 
IS 

N 

— 
no estimate 
available 
no estimate 
available 
— 
-0.1 

—. 
yes, starting with 
index for  Jan-1996 
HICP and  national 
CPI are  identical 
— 

no (average of 
relatives) 

yes, starting with 
index for  Jan-1998 
yes, starting with 
index for  Jan-1996 

no 

yes, starting with 
index for  Mar-
1997 
... 

GM will be used  from 
Jan-1998 
Jan-1996 

— 

-0.1 

Jan-1996  79 
Mar-1997 

-0.5 
no estimate 
available 

RAM 

— 

— 

12.7.  Quality  adjustment 

Quality  adjustment  is  widely  accepted  among  experts  as  one  of  the  most,  if  not  the  most, 
intractable  problems in CPI construction.  As the Boskin  report  illustrates,  the  problem  is not 
generally understood and many observers share the mistaken impression that no allowances are 
made for improvements that have occurred in product quality thus leading to an overstatement 

79 

Estimates for  1995 are adjusted to take into account the effect  of the formula change, see also paragraph 
6.4. 

page 45i 

of inflation.  In practice  many  different  adjustments have been  made  as  index  compilers  have 
attempted  to  solve  the  problems  in  different  ways  and  these  may  have  resulted  in  an  over 
compensation for such improvements. 

As  a first step  of  compliance  monitoring  and  to  initiate  further  research  in  order  to  define 
appropriate standards for the treatment of changes in the quality  of goods  and services  in the 
HICP, the Commission (Eurostat) requires information  on actual  quality adjustments. For five 
goods Member States were asked to provide the number of observations which were replaced 
during  the  four  months  period  January  1997  to  April  1997,  and  also  the  type  of  quality 
adjustments  which  were  made to  introduce  these  replacements  into  the  HICP.  Men's  shirts, 
sofas, CD players, refrigerators and washing powder were selected because these five items are 
covered  in all HICPs,  are fairly  easy to  define,  and give  a range  of  rates  of  product  change: 
slow, medium and fast. The quality adjustments were classified  as one of three types: 

(a) 

(b) 

(c) 

linking,  which is  equivalent  to  the assumption  that the  difference  in price between  the 
old item and its replacement  is wholly  attributable to  a difference  in quality.  Therefore, 
no  price  change  between  the  old  item  and  its  replacement  is  reflected  in  the  HICP. 
Member States need to be able to demonstrate that linking is not used automatically,  i.e. 
without  justification80.  One  argument  used  is  that  the  price  difference  represents  the 
"market"  evaluation  of  the  quality  difference  as  in  "overlap  pricing"  (see  (c)  below). 
Another argument is that the items are indeed so different  that they cannot be compared 
and that the replacement is introduced to maintain the representative of the sample. 

same quality  adjustment,  which treats the replacement  as being of same quality as the 
old item which it replaces.  Therefore,  the whole  of the price  difference  between the old 
item and its replacement is reflected in the HICP. In the absence of an explicit national or 
Eurostat  estimate  of  the  value  of  the  quality  change,  a  same  quality  adjustment  is  the 
default adjustment under Article 5 of Commission Regulation (EC) No 2494/95. 

other  quality  adjustment,  where  the  value  of  the  quality  difference  between  the  old 
item and its replacement is estimated as somewhere in between zero and the whole price 
difference,  or  occasionally  outside  that  range.  Those  estimates  could  be  made  by 
commodity  experts,  or  using  methods  such  as  hedonic  regression81,  overlap  pricing82, 
option pricing83, the production cost approach84, or the imputation approach85. 

The results showed large differences between Member States in the proportion of observations 
that were replaced during the first four months of  1997.  Some had low  replacement  rates  of 

80 

82 

83 

85 

See also paragraph 6.2.3. 

Coefficients  of a regression model, which relates the price to a number of characteristics of the item, are 
taken as estimates of the value of the quality difference between the old item and its replacement 

The price difference between the old item and its replacement in the overlap period, which is considered 
as the "market" evaluation,  is used as estimate of the value of the difference  in quality between the two 
successive items 

The prices charged for features which are included in the replacement item but optional  in the old item 
are used as estimates of the value of the quality difference  between the old item and its replacement 

Additional  manufacturai  costs of producing the replacement item as compared to the old item is used as 
the estimated value of the difference  in quality between the two successive items 

The  price change between  the old  item and  its  replacement  is  imputed  using  the  price  change  of the 
other  items belonging  to the same group. Hence, the value of the  quality  adjustment  between  the old 
itcniand its replacement is estimated as the difference between the price of the old item and the imputed 
price 

page 46flB 

between  6%  and  12% for  each  of the five items, whereas others  showed  replacement  rates  of 
up  to  41% for  sofas  and  54% for  CD  players.  Some  Member  States  reported  that  for  some 
items they did not replace any observation from  January to April  1997. 

As regards the  type  of  quality  adjustments  it was  only possible  to  look  at  their  distribution 
for  about  ten Member  States  as the  number  of replacements  in the  remaining  Member  States 
was small, i.e. ten  replaced  observations or fewer  per item during the four  months period.  For 
the  ten  Member  States  the  results  showed  that  the  types  of  quality  adjustments  used  differ 
between  the five items  and  between  Member  States.  The  majority  of Member  States  use  the 
extreme  adjustments  "linking"  and  "same  quality".  Some  use  both  procedures  to  about  the 
same  extent,  whereas  others  almost  exclusively  use  the  "linking"  procedure  or  assume  the 
"same  quality"  for  most  replacements.  Only  a  few  Member  States  use  "other  quality 
adjustments"  as the main procedure. 

The  differences  in  procedure  between  Member  States  do  not  necessarily  lead  to  non-
comparability  but  do  confirm  the widely  expressed  concern  that  "quality  adjustment"  is giving 
rise  to  considerable  scope  for  bias  and  hence  non-comparability.  Not  only  are  there  large 
differences  in  the  rates  of  product  change  identified  but  there  is  also  little  common  in  the 
procedural  response  that  is  evoked  by  a  particular  change.  The  procedures  followed  rest  on 
different  assumptions  about  what  is  to  be  measured  and  on  varying  amounts  of  information 
available from  which to compute an adjustment.  In a majority  of cases the procedures  followed 
involve  no  assessment  of  the  differences 
in  specification  between  a  product  and  its 
replacement. 

The next  step  is to  further  analyse the adjustment  procedures  and to  estimate the effect  on the 
HICP.  This  requires  the  development  of  a  common  terminology  for  quality  adjustment, 
including  the  distinction  between  a  replacement  item  and  a  new  good.  For  example,  the 
omission  of  an  observation  for  one  or  two  months  and  the  introduction  of  a  new  good 
thereafter  makes  a  quite  different  assumption  about  a  quality  change  from  alternative 
procedures, and may implicitly yield non-comparable results. 

From the information  collected  it is not possible to  estimate the effect  that  the different  quality 
adjustment  practices  have  on  the  HICP.  Certain  practices,  for  example  linking,  may  raise  or 
lower the index compared with a "same quality" adjustment  depending on whether the price of 
the  replacement  is lower  or  higher than the price of the  old  item.  The  Commission  (Eurostat) 
proposes  to  examine  the  effect  on  the  index  of  a  particular  quality  adjustment  practice  by 
comparing  the HICP  in each  Member  State with  the  index  which  would  have  resulted  from  a 
"standard  reference  practice".  This  standard  reference  practice  would  not  necessarily  be  the 
correct  or  best  practice  as  there  is  no  consensus  as  to  what  the  correct  or  best  practice  is. 
However,  it  serves  as  a  point  of  reference  against  which  to  judge  the  practices  of  Member 
States. The Commission intends to follow  a sequential  inquiry approach  making  improvements. 
The burden  on Member  States is thus kept to a minimum. 

Furthermore,  the  interaction  between  the  sampling  procedure  and  quality  adjustment  needs  to 
be  investigated.  How  are  replacements  identified?  Why  do  some  Member  States  have  high 
replacement  rates  where  others  do  not  report  any  replacements  at  all?  Differences  in  the 
sampling  and  the  quality  adjustment  procedure  might  have  counterbalancing  effects  on  the 
HICP. 

Finally, the Commission  (Eurostat)  will carry out further  checks on compliance with  respect  to 
the use  of linking. Member  States  need  to be able to  demonstrate  that  automatic  linking is not 

page 47iV 

used.  In the  absence  of national  estimates  for the value  of the quality  difference,  the  present 
position is that Member States should as a default reflect  the full  price difference  between the 
old item and its replacement in the HICP. Eurostat's database on quality adjustments should be 
operational in 1998. 

To  sum up,  so  far the  comparability  of HICPs  has been  improved  by banning  one  frequently 
used  but  inappropriate  procedure  for  treating  changing  product  quality  and  further 
improvement  is  expected  as  a result  of  a co-ordinated  programme  of  work  among  Member 
States. Work comparing practices and their underlying assumptions and by targeting the most 
important  areas of product  development  is throwing  much light  on specific  operational  issues 
that  must  be  resolved  before  comparable  practices  can  be  established.  Agreements  are 
necessary  on  what  product  changes  should  be  regarded  as  changes  in  quality  and  on 
appropriate  procedures  for  allowing  for  particular  changes  in  order  to  provide  a  basis  for 
extending the initial requirements.  As the BLS  response to Boskin  indicated  it is unlikely that 
all the problems of quality change in CPIs will ever be resolved. However, the comparability of 
HICPs can be improved if common approaches are followed  in like situations. This will require 
agreement on concepts and procedures, the sharing of information on product specification and 
the  valuation  of  particular  changes.  The  Commission  (Eurostat)  and  Member  States  are 
working actively to this end. 

12.8.  Sample design and  maintenance 

12.8.1.  Sampling and  comparability 

Good  sample  design  and  maintenance  have  been  recognised  from  the  outset  of  the 
harmonization  exercise  as  critical  to  reliability,  relevance,  and  comparability  of  HICPs86. 
However,  for reasons of costs and operational constraints the sample of prices used in national 
CPIs and, hence,  for HICPs do not follow  methods  advanced  in statistical  theory.  As  a result 
few Member States have any assessment of the precision of their indices (sampling errors) and 
none has any measure of bias. 

Most  Member  States  follow  some  form  of  purposive  sampling  rather  than  random  or 
probability sampling and the sizes of the samples depend more on costs and arbitrary historical 
decision processes than on the demands of a required level  of accuracy.  However,  it does not 
follow  that because  a sample fails to  meet the requirements  of theory that it  necessarily  gives 
poor  results.  It  is  not  therefore  a  matter  of  requiring  all  Member  States  to  conform  to  a 
particular  practice  since the  costs  of  change  may not  be warranted.  Whether  a HICP  sample 
. gives  acceptable  results is an empirical  question  which  can  only be  answered  by  carrying  out 
appropriate  research.  The  harmonization  process  and  the  co-operation  it  has  evoked  among 
Member  States  provides  an  opportunity  to  examine  the  problem  in  ways  not  available  to  a 
single National  Statistical  Institute.  The effect  of a particular  sampling  practice  on  one HICP 
can  be  explored  by  reference  to  other  HICPs  either  by  simulation  or  by  other  experimental 
methods. 

The Commission (Eurostat) has instituted a programme of research with Member States which 
aims  to  establish  those  sampling  methods  and  practices  which  yield  reliable  results  and  to 
develop  methods  for  assessing  the  reliability  of  HICPs  whatever  sampling  arrangement  are 

See also paragraph 6.2.6. 

page 48] 

used.  As  part  of  that  programme,  Statistics  Netherlands  has  analysed  the  procedures  for 
sampling  geographic  localities,  outlets,  items,  and  varieties87  used  for  compiling  the  HICP. 
Member States were asked to identify their sampling procedures as one of the following types: 

(a)  Probability sampling: 

= simple random sampling 
= sampling with probability proportional to size 

SI 
PPS 
stratified  SI  = stratified sampling with SI sampling in each stratum 
stratified PPS  = stratified sampling with PPS sampling in each stratum 

(b)  Non-probability sampling: 

judgmental 

=  sampling where the selection  of elements  is based  on the judgement  of 

experts 

cut-off 

= sampling where the elements with a value of the auxiliary variable,  e.g. 

sales value, above the cut-off value are included in the sample 

quota 

=  sampling  where  the  number  of  elements  is  fixed  a  priori,  and  the 

selection of elements is delegated to price collectors 

Sampling  methods  vary  considerably  between  Member  States.  Only  Sweden  and  the  United 
Kingdom  seek  to  use  full  probability  sampling,  all  other  Member  States  mainly  apply  non-
probability  procedures,  such  as  judgmental  or  cut-off  sampling.  The  main  advantage  of 
probability sampling is that it gives some guarantee against bias. It also allows the estimation of 
sampling  errors  and  the  optimisation  of  the  sample  sizes  for  localities,  outlets,  items,  and 
varieties.  Member  States frequently  use non-probability  sampling  due to  the  lack  of  sampling 
frames which are needed to apply probability sampling techniques. 

Most Member States use a two-stage sample design to select geographic localities and outlets: 
first a sample  of  municipalities  is  drawn,  and then  in  each  selected  municipality  a  sample  of 
outlets is chosen. Municipalities are in general  sampled using  probabilities  proportional  to the 
number  of  inhabitants.  Outlets  are  selected  according  to  their  turnover,  in  general  on  a 
judgmental  basis.  Six Member States use probability sampling for the  selection  of outlets: the 
Netherlands, Portugal,  Finland,  Sweden, the United Kingdom,  and Norway.  Sweden  does not 
first select  localities  and then outlets, but uses  random  stratified  one-stage  sampling  to  select 
outlets from the Swedish business register. Most Member States exclude mail order firms and 
market stalls from the selection of outlets. 

In  all  Member  States,  except  for  Sweden,  the  items  are  chosen  by  the  National  Statistical 
Institute  using  criteria  such as representativity  rather than probability  sampling  techniques  In 
general  the  item  selection  is  a two-stage  procedure:  first  a  number  of  item  sub-groups  are 
selected  using  the  cut-off  method  allowing  only  those  sub-groups  with  the  largest  market 
shares  to  be  chosen;  then  specific  items  are  selected  from  each  sub-group  by  means  of 
judgmental  selection.  In those cases where the National  Statistical  Institute  indicates the items 
only  by  loose  specification,  the  price  collectors  usually  choose  the  most  frequently  bought 
variety that fits the item description. 

The  results  of  Statistics  Netherlands  for  sampling  geographical  localities  and  outlets  are 
summarised in Table  11, those for sampling items and varieties in Table 12: 

A variety  is a more detailed description of the particular item, i.e. good or service, selected  in an outlet 
by the price collector within the item specification  provided by the National Statistical Institute 

page 49J 

Table 11: 
Monthly sample of geographical localities and outlets in Member States 

Localities 

Number  Frame 

Low or zero coverage 

yes  mail order 

firms 

Outlets 

Design 
judgmental 

Design 
judgmental 

B 

DK 

judgmental 

J) 

cut-off, 
quota 

65 

30 

190 

no 

EL 

judgmental 

23 

yes 

E 

cut-off 

130 

no 

F 

stratified 
PPS 
I RL  stratified  SI 

I 

L 

unknown 

judgmental 

NL 

stratified 
PPS 

96 

82 

82 

22 

100 

yes  mail order 

firms, 

judgmental 

street markets 
shops for  luxury items 
and for  low quality 
items, weekly markets 
shops for luxury items, 
non-food  street markets 
unknown 

judgmental 

judgmental 

no 

unknown 

judgmental 

no  mail order 

firms, 

street markets 

yes  mail order 

firms, 

judgmental, 
quota 
cut-off 

teleshopping 

firms 

yes  mail order firms, street 

judgmental 

markets, small  non- 
specialist food  shops 
firms 

yes  mail order 

Updating* 
every base year 
revision 
every third year 

every base year 
revision 
in reaction  to 
market signals 
yearly 

every base year 
revision 
every base year 
revision 
in reaction to 
market  signals 

Number 
9 509 

1900 

22  100 

3 200 
' 
29 000 

27300 

3 898 

25 000 

634 

judgmental 

every base year 
revision 

stratified  SI, 
judgmental, 
cut-off 

every base year 
revision 

11000 

4 200 

9 500  88 

2 000 

726 

18 000 

420 

2  100 

A 

P 

cut-off 

20 

no 

i 

PPS 

- 41 

yes 

F IN  stratified 

107 

yes 

PPS 

S 

no sampling of 
localities 

< 

yes 

UK 

stratified  SI 

146 

yes 

IS 

judgmental 

4 

yes 

temporarily open outlets,  judgmental 
street markets 
shops for  luxury items, 
street markets, con- 
sumption co-operatives. 
street markets, door-to- 
door selling, network 
marketing 
specialist shops, mail 
order firms, repair 
workshops 
non-food  market  stalls 
shops requiring a 
membership fee 
unknown 

judgmental 

every base year 
revision 

stratified  PPS,  instantly  in 
reaction  to 
judgmental 
market signals 
stratified  PPS,  every base year 
judgmental, 
cut-off 
stratified  PPS  every year 20% 

revision 

by  rotation 

stratified  PPS  five yearly 
stratified  SI 

every base year 
revision 

N 

stratified 
I PPS 

shops requiring a 
membership fee 
* Except for  (forced)  replacement  of outlets which cease trading or refuse  to continue co-operation 

stratified  PPS  every year  1/6 

by rotation 

100 

yes 

Source: Statistics  Netherlands 

10 700 starting  with  the updating  of the index  in late  1997 

page 501 

Table 12: 
Monthly sample of items and varieties in Member  States 

Design 

Items 

Updating* 

Number 

Design 

Varieties 

B 
DK 
D 
EL 
E 

judgmental 
judgmental 
judgmental 
judgmental 
cut-off, 
judgmental 
judgmental, 
cut-off 
IRL  judgmental 
judgmental 
judgmental 

NL  cut-off, 

judgmental 
judgmental, 
cut-off 
stratified PPS 

FIN  judgmental 

every base year revision 
in reaction to market signals 
every base year revision 
every base year revision 
in reaction to market signals 

yearly 

461 
1200 
750 
600 
471 

judgmental 
judgmental 
cut-off 
judgmental 
judgmental 

1033 

quota 

every base year revision 
every base year revision 
in reaction to market signals 
in reaction to market signals 

every base year revision 

560 
920 
263 
1200 

710 

instantly  in  reaction  to  market  577 
signals 
every base year revision 
in reaction to market signals 

401 
318 

89 

quota 
cut-off 

cut-off 

judgmental, 
cut-off, quota 
stratified PPS 

judgmental 
cut-off 

cut-off 
judgmental 
judgmental 

stratified PPS, 
SI, judgmental 
judgmental 
judgmental 
judgmental 

646 
UK 
2  131 
IS 
N 
900 
*  Except for (forced) replacement of items which cease to be sold 
**  Excluding price quotations used in measuring housing items 

yearly 
every base year revision 
yearly 

No of price 
quotations** 
91980 
25 000 
400 000 

20 000 
150 000 

171 000 

45 000 
300 000 
5 700 
100 000 

80 000 

40 000 

43 600 
22 800 

120 000 
13 738 
45 000 

Source: Statistics Netherlands 

12.8.2.  Statement  of the target sample and  maintenance 

As a first  step  of compliance  monitoring and  to  initiate further  research  in order  to  extend  the 
minimum  standards  for  prices  and  for  sampling  Member  States  were  asked  to  describe  their 
"target  sample"  for  the  HICP90,  which  is essentially  the  present  plan  for  the  number  of  prices 
that  should  be  obtained  for  the  production  of  the  HICPs  from  January  1997.  The  minimum 
standards  for  prices  oblige  Member  States  to  maintain  their  target  sample  from  month  to 
month91,  and  the  minimum  standards  for  sampling  require  Member  States  to  improve  the 
representativity  of  their  target  samples,  where  necessary,  in  order  to  achieve  reliability  and 
comparability of HICPs92. 

Member  States  were  asked  to  give  the  total  number  of  items  and  the  total  number  of  price 
observations  for  each  HICP  sub-index  on  3-digit  level  of  COICOP/HICP,  and  were  asked  to 

89 

90 

91 

92 

650 starting with the updating of the index in late  1997 

In line with Article 9 (f) of Commission Regulation (EC) No 1749/96 

See also paragraph 6.2.4. 

See also paragraph 6.2.6. 

page 5 Iv 

indicate the number of monthly and less frequent  price observations. According to Article 8 of 
the HICP Council Regulation the required frequency of price collection for the HICP is at least 
once a month. The Commission (Eurostat) may allow less frequent  price observation where the 
requirements of comparability of the HICP are not breached. 

For the HICP  about  87% of the prices  are collected  at  least  monthly.  In  Greece,  Italy, and 
Portugal certain items, such as fresh fruits and vegetables, are collected twice a month or even 
weekly. According to the target sample Belgium, Germany, Spain, and Iceland obtain close to 
100% of the prices monthly, Sweden and the United Kingdom 97%, France and Norway 95%, 
and  Greece  94%.  France  extended  the  monthly  price  collection:  in  1996  about  15700 
observations were changed for  from  quarterly to monthly  price collection,  and  another  8700 
observations  in  1997. Hence,  an  additional  16300 prices  are now  observed  monthly  for  the 
HICP.  Sweden also changed  several items which were previously  collected  only once, twice, 
or four times a year to monthly price collection from January 1997. 

Less  frequent  than  monthly  price  collection  is the  exception  for  the  HICP,  for  example  for 
seasonal items which are only available during certain months. However, the Netherlands and 
Portugal  make frequent  use of rolling or rotating  samples where each month  1/x of the total 
prices for the item are obtained. Furthermore, the Netherlands collects prices for  example for 
rents only once a year. Both Member States need to be able to demonstrate that this treatment 
does not give rise to non-comparability. 

Table 13 gives the percentage of monthly and less frequent  price,observation as planned in the 
target samples of Member States: 

Table 13: 
Monthly and less frequent  price observation for the HICP 
as specified  in the target samples of Member States 

more than 
once a month 
0 
0 
0 
38 
0 
0 
0 
30 
0 
0 
0 
10 
0 
0 
0 
•  0 
0 

B 
DK 
D 
EL 
E 
F 
IRL 
I 
L 
NL 
A 
P 
FIN 
S 
UK 
IS 
N 

monthly 

'ercentage of p 
F 
every second 
month 

rices observed: 
quarterly 

twice a year 

once a year 

0 
1 
0 
2 
0 

•5 
11 
15 
0 
6 
28 
46 
3 
•3 
3 
0 
3 

0 
20 
0 
0 
0 
0 
0 
0 
8 
0 
0 
0 
0 
0 
0 
0 
1 

0 
3 
0 
1 
0 
0 
2 
0 
2 
11 
0 
1 
1 
0 
0 
0 
1 

100 
77 
100 
56 
100 
95 
87 
55 
91 
.  59 
72 
43 
84 
97 
97 
100 
95 

0 
0 
0 
3 
0 
0 
0 
•  0 
0 
23 
0 
0 
11 
0 
0 
0 
0 

page 52J 

Most  Member  States  have  taken  the  introduction  of  the  HICP  as  an  opportunity  to  enhance 
their  samples.  For  example,  they  have  added  items  and  increased  the  number  of  price 
observations to improve their sample for certain sub-indices. This required new surveys and the 
estimation  of historic  prices and  weights.  Greece  added  more than  200  and  Austria  130  items 
to  their  target  samples  which,  therefore,  increased  by  13%  and  24%  respectively.  Most 
Member  States also increased  the number of price observations: Denmark  and  Greece observé 
6%  more  prices,  Austria  14%,  and  Luxembourg  22%  more  than  they  did  for  their  national 
CPI.  Table  14  gives  the  number  of  items  for  which  prices  are  collected  and  the  number  of 
prices observed  in total per month, and the number of additions for the HICPs: 

Table 14: 
Total number of items and price observations per month for  compiling 
the HICP as specified  in the target  samples of Member  States 

Total nu 

B 
DK 
D 
EL 
E 
F 
IRL 
I 
L 
NL 
A 
P 
FIN 
S 
UK 
IS 
N 

items: 

461 

784 
1 766 

1 033 

601 
263 
16 239 
678 
593 
399 
309 
686 
2  131 
781 

mber of 
observations: 
91 980 
31 158 
326 615 
33 687 93 
119 143 
171 088 
42 379 
288 553 
6 656 
115 522 
53 475 
103 691 
45 870 
29 899 
130 981 
13 738 
47 857 

Additions fc 
items: 

)r the HICP 

observations: 
0 
1696 
356 
1 803 

2 323 
0 
7 
1 190 
0 
6 605 
1 093 
170 
27 
73 
0 
0 

0 

4 
208 

0 
1 
21 
0 
130 
11 
4 
3 
2 
0 
0 

As  a  next  step  the  Commission  (Eurostat)  will  require  under  compliance  monitoring 
information  on the extent  to which the target  sample is actually  maintained  in Member  States: 
how  many  of the prices which  according  to  the target  sample  should  be  collected  monthly  (or 
less  frequently  in  exceptional  cases)  are  actually  observed;  what  procedures  are  used  for 
estimating missing observations.  Sample maintenance is essential because the aim is to  measure 
price  changes  rather  than  price  levels  per  se.  The  sample  must  be  designed  to  track  prices  of 
the same good  or service from  month to month from  the reference  period  to reflect  the  change 
in a "fixed  basket". Where prices cannot be observed  short-term  it is important  that  appropriate 
estimates  are  made;  long-term  it  is important  that  appropriate  replacements  are  found.  So  far 
the  comparability  of  HICPs  has  been  improved  by  banning  the  frequently  used  but 
inappropriate  procedure  of  automatically  carrying  forward  the  last  observed  price.  Further 
improvement  is expected  as a result of studies carried  out by the Commission  (Eurostat)  in co-

Refers  to a theoretical  month during which all  items are collected,  i.e. all  seasonal  items and all  items 
which are collected less frequently  than monthly 

page 531 

operation with Member  States on  appropriate  limits for the  numbers  of  estimated  prices and 
permissible estimation procedures. 

13.  OPERATION OF THE PROCEDURE UNDER ARTICLE 14  OF COUNCIL 

REGULATION (EC)  NO 2494/95  ("COMITOLOGY") 

According to Article  145 of the EC Treaty,  "the Council shall (...)  confer on the Commission, 
in the  acts  which the  Council  adopts,  powers  for  the  implementation  of  the  rules  which  the 
Council lays down. The Council may impose certain requirements in respect of the exercise of 
these  powers  (...)".  Such  "requirements"  have  been  generally  defined  by  the  Council  in  its 
Decision  87/373/EEC  laying  down  the  procedures  for  the  exercise  of  implementing  powers 
conferred  on the  Commission,  and consist  in the  obligation  for  the  Commission  to  consult  a 
"committee" composed of representatives of the Member States, following  a range of  different 
possible procedures described in the said Council Decision. Each Council legal act must specify 
in  every  particular  context  which  of  these  procedures  is  to  be  applied.  The  participation  of 
"committees" determines that this implementation process is broadly known as "comitology". 

Concerning  Harmonized  Indices  of  Consumer  Prices,  Article  14  of  Council  Regulation  (EC) 
No  2494/95  lays  down  the  specific  procedure  according  to  which  the  Commission  may 
exercise  the  powers  for  the  implementation  of the  rules  laid  down  therein.  It  states  that  the 
Commission  shall  be  assisted  to  this  end  by  the  Statistical  Programme  Committee  (SPC), 
established  by  Council  Decision  89/382/EEC,  Euratom,  following  the  procedure  Ilia 
(regulatory committee) among those established by Council Decision 87/373/EEC. 

In  practice  the  comitology  procedure  to  draw  up  Commission  legal  acts  (Commission 
Regulations, so far) implementing Council Regulation (EC) No 2494/95 works as follows: 

(a) 

If Eurostat has evidence of non-comparability  or sees a need for harmonization an initial 
proposal  for  a Commission  Regulation  is  presented  to  and  discussed  by  a Task  Force, 
which  is  a  sub-group  of  the  Working  Party  comprising  statisticians from the  National 
Statistical  Institutes,  main  users,  experts  working  in  the  field  of  price  indices,  and  a 
representative  of the  CEIES94.  Taking  into  account  the  conclusions  of the  Task  Force, 
Eurostat submits a draft regulation to the full Working Party. 

(b)  The Working Party further  discusses  and proposes  amendments  to  the  draft  regulation 

until a general agreement on the technical details can be reached. 

(c)  Eurostat sends the draft regulation for interdepartmental  consultation in the Commission. 
It needs to be approved by all relevant Commission Departments95 and the Legal Service. 

(d)  Eurostat  submits  the  draft  regulation  for  opinion  to  the  SPC  which  is  acting  as  a 

Regulatory Committee type Ilia under the Qualified Majority Vote procedure. 

(e) 

In accordance with Article 5 (3) of the HICP Council Regulation,  the  Secretary General 
of the Commission sends the draft regulation for consultation to the EMI. 

-

(f)  After all parties have been consulted and a final text is ready for decision, Eurostat sends 

the draft regulation for agreement of the Commissioner concerned. 

9A 

95 

Committee on Statistical Information  in the Economic and Social Sphere 

Secretariat General, DG II, DG V, DG DC, DG X, DG XV, DG XIX, DG XX, DG XXIII, and DG XXIV 

(g)  After  the  Commissioner  agrees  the proposal  the  Secretary  General  of  the  Commission 
submits  the  draft  regulation  for  approval  by  the  Commission  (the  "college"),  which 
decides finally on its adoption. 

(h)  Once adopted, the Commission Regulation is published in the Official Journal. 

Thanks to the co-operation of the Member States, the support of the main users, especially DG 
II  and  the  EMI,  this  procedure  under  Article  14  of  the  Council  Regulation  proved  to  be 
efficient  and worked to the satisfaction of all parties involved. 

As a next step the Commission (Eurostat) intends to  merge all implementing  measures for the 
HICP which are currently laid down in several Commission Regulations and draft  Commission 
Regulations  into  one  consolidated  Commission Regulation.  Since the first regulations  defined 
initial  implementing  measures  and  minimum  standards,  the  progress  in  the  harmonization 
program  did  and  will  require  that  new  regulations  amend  previous  ones,  which  makes  their 
application  rather  convoluted.  The  consolidation  will  be  aimed  at  simplifying  the  legislative 
framework  and  should  take  place  after  the  main  regulations  have  been  adopted  by  the 
Commission. 

page 55Af 

ANNEX 

As mentioned in paragraph  12.4., the following  Table  15 gives the weights for each sub-index 
of the HICP from each Member State. The weights dating from the weight reference period  of 
each Member  State were  "price-updated" and expressed  by reference  to  the  average  level  of 
prices in 1996. 

The  table  distinguishes  between  actual  and  rounded  zero  weights.  An  actual  zero  weight  is 
shown  as  ":"  indicating  that  the  according  sub-index  is  not  covered  by  the  HICP  of  the 
Member State. A rounded zero weight is given as "0.0" indicating that the according sub-index 
is covered by the HICP of the Member State, but with a weight below  1 in 1000 which rounds 
to zero. 

For the following  sub-indices  Member  States  applied  different  definitions  than those  given in 
Commission Regulation (EC) No 2214/96, which is indicated in by a "d"  in Table 15: 

•  Denmark: 

04.5.5.: 

•  Finland: 

04.1.: 

•  Sweden: 

04.1.: 

The weight  for  "hot water,  steam  and ice" includes  "solid fuels" for which the 
weight is below  1/1000. 

The weight for  "actual rentals for housing" includes  charges for heating, water, 
hot  water  supply  and waste  collection.  The  rent  and the  charges  can  be  split 
neither in the index nor in the weight. 

The weight for "actual rentals for housing" includes charges for electricity, gas, 
water,  hot water supply and waste collection.  The rent and the  charges  can be 
split neither in the index nor in the weight. 

04.5.5.: 

The weight for "hot water, steam and ice" includes district heating. 

09.1.8.: 

The weight for "pets" refers only to pet food. 

For the following  sub-indices Member States used  special  estimation  procedures for  deriving 
the weight; in Table 15 these weights are indicated by an "e": 

•  Portugal: 

09.3.1.  and  09.1.4.:  The  weights  for  "data  processing  equipment"  and  for  "other  major 
durables  for  recreation  and  culture"  are  estimates  based  on  the  household 
budget survey. 

12.4.2.A  and  12.4.4.A:  The  gross  weights  for  "insurance  connected  with  the  dwelling: 
contents" and  "insurance connected  with  transport:  cars" are  derived  from  the 
household  budget  survey.  Net  weights  are  estimated  using  data  from 
supervision  authorities  of  insurances:  premiums  and  claims  for  compensations 
related to maintenance and repairs. 

•  Finland: 

02.1.1.,  02.1.2.  and  02.1.3.: The disaggregation  of the  weight  for  alcoholic  beverage  into 
"spirits", "wine", and "beer" is estimated using the consumption shares obtained 
from the  Finish  alcohol  monopoly  ALKO.  They  also  deliver  the  index  for 
alcoholic beverage, which is one index covering all prices for alcohol. 

page 56J 

04.1.,  04.3.2.,  04.4.A  and  04.5.1.:  The weights  for  "actual  rentals for  housing",  "services 
for  the  regular  maintenance  of  the  dwelling",  "other  services  relating  to  the 
dwelling",  and  "electricity"  are  estimated  using  the  housing  statistics  of 
Statistics  Finland.  Since  the  household  budget  survey  uses  à  different 
classification, the weights cannot be obtained from there. 

12.4.2.A  and  12.4.4.A:  The  net  weights  for  "insurance  connected  with  the  dwelling: 
contents"  and  "insurance  connected  with  transport:  cars"  are  estimated  by 
deducting  from  the  gross  weights  used  in  the  national  CPI  thé  value  of 
reimbursements paid by insurance companies. 

Sweden: 

04.5.5.: 

The weight  for  "hot water,  steam and ice" is  estimated  on the basis  on  energy 
statistics produced by Statistics Sweden. 

United Kingdom: 

07.1.1.,  07.2.1.  and  07.2.3.:  The  weights  for  "new  and  second  hand  motor  cars",  "spare 
parts  and  accessories",  and  "maintenance  and  repairs"  equals  the  weight 
calculated from the household budget survey plus a proportion of the insurance 
weights representing claims paid directly by the insurance companies. 

09.1.1.,  09.1.2., 09.1.3. and  12.2.: The weights for "equipment for the reception, recording 
and reproduction  of  sounds  and pictures",  "photographic  and  cinematographic 
equipment and optical instruments", "data processing equipment", and "personal 
effects  n.e.c."  equal  the  weight  calculated from the  household  budget  survey 
plus a proportion  of the insurance weights  representing  claims paid  directly by 
the insurance companies. 

page 571 

Table  15: Sub-index weights of the HICP as part per 1000 (Annual  1996) 

B 
204.5 

DK 
173.7 

D 
154.1 

EL 
231.7 

E 
275.4 

F 
192.7 

IRL 
195.7 

I 
197.4 

L 
162.0 

NL 
170.5 

A 
143.3 

P 
295.0 

FIN 
164.0 

S 
179.8 

UK 
149.0 

IS 
203.6 

N 
172.6 

01. 

01.1. 
01.1.1. 
01.1.2. 
01.1.3. 
01.1.4. 
01.1.5. 
01.1.6. 
01.1.7. 
01.1.8. 
01.1.9. 
01.2. 
01.2.1. 
01.2.2. 
02. 

02.1. 
02.1.1. 
02.1.2. 
02.1.3. 
02.2. 
03. 

03.1. 
03.1.1. 
03.1.2. 
03.1.3. 
03.1.4. 
03.2. 

FOOD AND  NON-ALCOHOLIC 
BEVERAGES 
Food 
Bread and cereals 
Meat 
Fish 
Milk, cheese and  eggs 
Oils and  fats 
Fruit 
Vegetables incl. potatoes and other tubers 
Sugar, jam,  honey, chocolate,  confectionery 
Food products n.e.c. 
Non-alcoholic  beverages 
Coffee,  tea and cocoa 
Mineral  waters, soft  drinks and juices 
ALCOHOLIC  BEVERAGES  AND 
TOBACCO 
Alcoholic  beverages 
Spirits 
Wine 
Beer 
Tobacco 
CLOTHING AND  FOOTWEAR 

Clothing 
Clothing  materials 
Garments 
Other articles of clothing,  accessories 
Dry-cleaning,  repair and  hire of clothing 
Footwear, including  repairs 

262.3 
36.3 
75.4 
35.2 
35.6 
17.6 
26.4 
24.8 
8.1 
2.9 
13.1 
6.5 
6.6 
31.8 

11.5 
2.1 
6.2 
3.2 
20.3 
114.4 

184.7 
35.7 
58.7 
13.2 
24.5 
5.6 
12.9 
17.0 
13.2 
3.8 
19.9 
5.1 
14.8 
37.9 

155.9 
20.4 
47.2 
4.9 
25.6 
5.0 
8.7 
16.9 
18.5 
8.7 
17.8 
6.0 
11.8 
59.4 

136.0 
28.0 
38.5 
4.3 
21.0 
4.6 
10.6 
12.2 
11.5 
5.2 
18.1 
6.8 
11.3 
50.9 

23.8 
3.4 
13.8 
6.6 
14.1 
87.3 

71.8 
1.1 
66.6 
2.6 
1.5 
15.6 

29.5 
3.2 
10.1 
16.2 
29.9 
60.0 

51.0 
0.7 
46.5 
2.4 
1.4 
9.0 

24.7 
3.4 
6.4 
15.0 
26.2 
83.8 

70.9 
0.7 
64.5 
3.0 
2.8 
12.9 

221.8 
30.1 
56.4 
16.3 
36.8 
19.2 
19.1 
22.7 
14.6 
.  6.7 
9.9 
3.8 
6.0 
39.3 

6.6 
2.6 
1.7 
2.3 
32.6 
121.7 

95.3 
1.3 
85.6 
5.7 
2.8 
26.5 

180.3 
26.7 
'62.9 
12.8 
27.3 
6.7 
13.8 
14.9 
12.5 
2.7 
12.4 
5.1 
7.3 
46.1 

181.0 
35.9 
52.0 
4.5 
28.8 
7.0 
9.1 
21.1 
13.3 
9.2 
14.7 
4.8 
9.8 
80.3 

187.3 
25.6 
55.3 
12.3 
31.2 
8.6 
18.6 
25.6 
9.2 
0.9 
10.1 
5.0 
5.1 
30.2 

146.0 
25.4 
49.1 
7.7 
19.9 
5.3 
11.7 
13.9 
9.6 
3.4 
16.0 
6.7 
9.3 
29.1 

156.7 
30.4 
42.2 
4.0 
28.1 
4.4 
13.8 
18.2 
11.1 
4.4 
13.9 
6.2 
7.7 
35.2 

129.3 
22.9 
39.1 
2.8 
22.1 
5.5 
8.4 
12.5 
11.6 
4.4 
13.9 
5.8 
8.2 
39.2 

287.2 
44.0 
86.4 
39.1 
35.3 
26.5 
20.7 
24.9 
8.6 
1.7 
7.8 
4.1 
3.7 
45.3 

149.3 
30.1 
•  34.7 
6.4 
30.6 
5.3 
12.0 
12.6 
14.5 
3.1 
14.7 
6.3 
8.4 
92.2 

163.1 
28.5 
37.1 
9.5 
27.9 
5.9 
11.4 
18.4 
20.9 
3.5 
16.6 
6.2 
10.5 
62.2 

137.0 
25.0 
34.0 
6.0 
21.0 
4.0 
9.0 
19.0 
12.0 
7.0 
12.0 
4.0 
8.0 
69.0 

178.1 
"  33.5 
40.3 
8.8 
37.0 
4.6 
11.5 
13.8 
20.1 
8.7 
25.4 
5.5 
19.9 
39.0 

156.3 
18.3 
38.9 
10.7 
30.4 
4.5 
11.7 
14.2 
16.2 
11.5 
16.1 
4.o 
11.5 
35.1 

19.4 
5.0 
7.0 
7.4 
15.7 
75.4 

60.9 
2.6 
52.7 
4.5 
1.0 
14.6 

20.2 
3.8 
8.3 
8.1 
19.0 
82.4 

70.3 
1.4 
62.8 
3.5 
2.6 
12.1 

26.3 
1.8 
22.1 
2.4 
19.0 
103.6 

55.6 
22. le 
10.0e 
23.5e 
36.6 
77.4 

78.5 
2.0 
71.3 
3.8 
1.4 
25.1 

65.4 
3.2 
59.0 
2.8 
0.5 
12.0 

36.4 
12.7 
12.2 
11.4 
25.9 
69.0 

57.9 
1.3 
52.9 
3.3 
0.4 
11.1 

35.0 
10.0 
15.0 
10.0 
34.0 
66.0 

54.0 

49.0 
4.0 
1.0 
12.0 

20.9 
•  9.1 
4.0 
7.8 
18.1 
71.0 

57.6 
1.2 
50.4 
4.0 
2.0 
13.4 

17.5 
3.9 
5.3 
8.2 
17.8 
69.4 

58.0 
1.2 
53.2 
2.7 
1.0 
11.4 

24.8 
5.4 
17.3 
2.1 
21.3 
74.7 

28.9 
11.5 
8.5 
9.0 
51.4 
68.5 

11.3 
2.6 
7.3 
1.5 
18.8 
117.5 

18.2 
1.8 
11.7 
4.7 
10.9 
117.3 

92.3 
3.3 
84.2 
3.6 
1.2 
22.1 

60.3 
0.6 
52.8 
5.1 
1.8 
14.4 

"• 53.2 
0.5 
49.6 
0.6 
2.5 
15.2 

94.9 
1.1 
83.0 
1.8 
9.0 
22.6 

94.7 
0.3 
90.4 
1.3 
2.7 
22.6 

page 581 

04. 

04.1. 
04.3. 

04.3.1. 

04.3.2. 

04.4.A 
04.5. 
04.5.1. 
04.5.2. 
04.5.3. 
04.5.4. 
04.5.5. 
05. 

05.1. 

05.1.1. 
05.1.2. 
05.1.3. 

05.2. 
05.3. 

05.3.1/2 

05.3.3. 
05.4. 
05.5. 
05.6. 

HOUSING, WATER,  ELECTRICITY, 
GAS AND OTHER  FUELS 
Actual  rentals for housing 
Regular maintenance and  repair of the 
dwelling 
Products for the regular  maintenance  and 
repair of the  dwelling 
Services for  the regular maintenance  and 
repair of the  dwelling 
Other services  relating to the  dwelling 
Electricity, gas and  other fuels 
Electricity 
Gas 
Liquid  fuels 
Solid  fuels 
Hot water, steam and ice 
FURNISHINGS, HOUSEHOLD 
EQUD7MENT AND ROUTINE 
MAINTENANCE OF THE  HOUSE 
Furniture, furnishings  and  decorations, 
carpets, other floor coverings  and  repairs 
Furniture and  furnishings 
Carpets and other floor  coverings 
Repair of furniture,  furnishings  and  floor 
coverings 
Household  textiles 
Heating and cooking  appliances, 
refrigerators, washing machines, similar 
major household  appliances, incl.  repairs 
Major  household appliances (electric or  not) 
and small electric household  appliances 
Repair of household  appliances 
Glassware, tableware, household  utensils 
Tools and equipment  for house and  garden 
Goods and services for  routine  household 
maintenance 

B 
156.1 

DK 
194.6 

D 
202.7 

EL 
140.4 

E 
112.0 

F 
138.7 

IRL 
125.6 

I 
99.5 

L 
132.7 

NL 
187.4 

A 
137.6 

P 
73.1 

FIN 
135.2 

S 
208.9 

UK 
131.0 

IS 
114.9 

N 
184.5 

60.3 
19.2 

91.5 
22.9 

99.6 
11.5 

43.9 
22.9 

14.5 
40.5 

63.0 
18.5 

18.5 
1.0 

25.7 
13.6 

56.2 
21.4 

99.1 
22.4 

56.3 
20.7 

17.8 
10.9 

42.5de 
26.3 

129.5d 
0.9 

54.0 
18.0 

29.8 
14.2 

67.6 
42.7 

13.8 

12.1 

6.4 

9.1 

27.3 

2.9 

0.5 

1.8 

12.4 

12.5 

10.4 

2.5 

1.0 

0.9 

8.0 

11.8 

17.6 

5.4 

10.8 

:' 

5.2 

13.8 

13.3 

15.6 

0.5d 

11.7 

9.0 

10.0 

10.2 

8.4 

25.3e 

10.0 

2.4 

24.9 

10.3 
66.2 
43.6 
10.7 
10.6 
1.4 

91.7 

13.3 
66.9 
25.9 
7.6 
15.1 

18.3d 
65.8 

37.2 
54.3 
26.5 
7.1 
7.4 
3.1 
10.3 
78.9 

24.9 
32.0 
20.1 
7.7 
4.2 

19.0 
54.7 
24.8 
2.3 
23.9 
3.7 

89.3 

64.7 

10.2 
47.0 
26.7 
10.8 
6.9 
0.6 
2.0 
74.1 

3.1 
102.9 
21.5 
4.7 
8.2 
17.0 
51.4d 
60.0 

11.7 
54.2 
54.2 

19.8 
40.4 
15.6 
18.0 
6.8 

11.1 
44.0 
20.2 
10.1 
12.8 
0.9 

99.8 

120.3 

96.0 

10.7 
49.9 
23.1 
6.9 
6.7 
7.8 
5.3 
98.5 

6.8 
37.6 
23.8 
10.5 

3.3 
; 
78.8 

20.6e 
45.7 
38.5e 
0.2 
5.5 
1.5 
i 
64.7 

9.4 
69.1 
44.3 
0.5 
7.3 
": 
17.0de 
64.0 

14.0 
45.0 
22.0 
20.0 
1.0 
2.0 

89.0 

25.4 
45.7 
20.8 

24.9 
74.1 

14.3 
60.0 
53.8 

4.5 
1.5 
0.1 
85.4 

30.2 

23.5 

33.4 

16.6 

16.9 

24.9 

18.8 

35.0 

55.9 

37.0 

42.7 

29.0 

20.2 

28.9 

37.0 

28.8 

30.3 

27.7 
2.5 

19.3 
3.4 
0.8 

27.0 
6.2 
0.2 

14.5 
2.1 

15.2 
0.4 
1.4 

22.5 
1.7 
0.7 

6.5 
2.9 
9.4d 

33.4 
1.6 

51.6 
4.3 

28.9 
8.1 

39.2 
3.5 

25.7 
2,4 
0.9 

15.3 
4.9 

27.0 
10.0 

25.4 
3.5 
• 

26.8 
0.3 
1.7 

27.5 
2.8 

8.5 
17.1 

6.7 
12.3 

6.5 
12.8 

15.4 
10.8 

5.6 
10.8 

7.6 
13.0 

4.4 
&8 

12.7 
10.6 

10.4 
13.5 

11.6 
10.6 

10.3 
20.0 

7.7 
15.9 

7.8 
12.6 

6.5 
8.4 

6.0 
13.0 

10.7 
12.0 

7.4 
17.2 

14.4 

10.6 

12.1 

9.5 

9.4 

11.5 

8.3 

9.8 

13.2 

9.9 

17.7 

10.1 

11.4 

7.4 

11.0 

11.4 

15.8 

2.7 
5.4 
6.0 
24.5 

1.7 
6.7 
4.0 
12.6 

0.7 
5.8 
8.4 
12.0 

1.3 
9.2 
2.1 
35.2 

1.5 
3.9 
2.0 
25.4 

1.5 
8.8 
3.4 
16.4 

0.5 
4.3 
5.2 
18.5 

0.8 
5.8 
1.4 
34.3 

0.3 
4.5 
7.2 
28.8 

0.8 
6.8 
5.1 
24.9 

2.3 
7.0 
4.1 
14.4 

5.8 
5.0 
1.3 
19.9 

1.2 
7.5 
5.0 
11.6 

1.1 
5.1 
5.0 
10.1 

2.0 
7.0 
9.0 
17.0 

0.6 
6.2 
3.9 
12.5 

1.3 
5.2 
8.7 
16.7 

page 59, 

05.6.1. 
05.6.2. 
06.A 

07.-

Non-durable household  goods 
Domestic services and home care services 
HEALTH - paid  by the consumer and not 
reimbursed 
TRANSPORT 

* 

B 

13.6 
10.9 
8.7 

DK 
8.6 
4.0 
7.4 

D 
8.5 
3.6 
8.5 

EL 
25.5 
9.8 
11.9 

E 
16.0 
9.4 
8.4 

F 
11.5 
4.9 
4.8 

IRL 
12.8 
5.7 
6.0 

I 
18.0 
16.3 
16.0 

L 
13.1 
15.7 
2.8 

NL 
11.7 
13.2 
7.6 

A 
10.4 
3.9 
4.1 

P 
11.6 
8.3 
5.6 

FIN 
9.2 
2.5 
11.2 

S 
10.1 

12.1 

UK 
9.0 
8.0 
7.0 

IS 
11.1 
1.4 
9,2 

N 
14.3 
2.4 
7.1 

135.1 

179.7 

173.1 

125.6 

145.6 

191.4 

U7.0 

126.8 

160.9 

159.3 

148.0 

178.1 

192.8 

177.3 

152.0 

186,5 

201.8 

07.1 
07.1.1. 
07.1.2/3 
07.2. 
07.2.1. 
07.2.2. 
07.2.3. 
07.2.4.A 

07.3. 
07.3.l.A 
07.3.2.A 
07.3.3.A 
07.3.4.A 
07.3.5.A 
07.3.6.A 
08. 

Purchase of  vehicles 
New and second-hand  motor cars 
Motor cycles and bicycles 
Operation  of personal  transport  equipment 
Spares parts and  accessories 
Fuels and  lubricants 
Maintenance and  repairs 
Other services in respect of personal 
transport  equipment 
Transport  services 
Passenger transport by railway 
Passenger transport by road 
Passenger transport by air 
Passenger trans, by sea and  inland  waterway 
Other purchased  transport  services 
Combined  tickets 
COMMUNICATIONS 

58.9 
54.6 
4.3 
68.3 
5.4 
40.6 
19.7 
2.6 

7.9 
4.1 
2.5 

1.3 
23.7 

63.8 
58.6 
5.2 
82.6 
11.6 
32.4 
35.3 
3.3 

33.3 
2.8 
10.4 
5.1 
3.7 
1.8 
9.5 
23.1 

83.1 
79.0 
4.0 
73.5 
6.0 
36.3 
22.7 
8.5 

16.6 
3.2 
0.8 
0.7 
0.8 
0.5 
10.6 
19.5 

08.1. 
08.1.1. 
08.1.2/3 
09. 

Communications 
Postal  services 
Telephone and telefax equip, and  services 
RECREATION  AND  CULTURE 

23.7 
1.2 
22.5 
124.8 

23.1 
1.9 
21.2 
100.1 

19.5 
2.7 
16.8 
108.7 

40.6 
38.8 
1.8 
68.0 
12.3 
39.6 
11.2 
5.0 

17.0 
0.3 
7.3 
2.7 
2.0 
0.8 
3.9 
22.3 

22.3 
0.3 
22.0 
49.5 

57.5 
54.0 
3.5 
72.1 
4.5 
44.5 
17.5 
5.6 

16.0 
2.1 
12.3 
1.4 
0.2 
: 

15.8 

15.8 
0.4 
15.5 
69.3 

44.8 
43.2 
1.6 
118.4 
31.9 
49.1 
27.9 
9.5 

28.2 
7.5 
6.8 
5.8 
0.4 
0.8 
6.9 
20.2 

43.7 
42.1 
1.7 
57.4 
5.4 
43.5 
6.9 
1.6 

15.9 
1.9 
10.0 
1.7 
0.3 
0.3 
1.7 
21.2 

41.3 
37.1 
4.2 
63.5 
2.8 
27.5 
28.1 
5.1 

21.9 
3.1 
6.7 
2.4 
1.3 
2.7 
5.8 
17.8 

82.5 
77.4 
5.1 
70.8 
5.7 
32.2 
28.5 
4.4 

7.6 
0.9 
,  1.3 
1.9 
• 

0.5 
3.0 
17.0 

66.8 
60.6 
6.2 
68.2 
6.8 
37.1 
17.4 
6.9 

24.3 
9.2 
8.8 
4.7 
1.3 
0.3 

24.6 

51.3 
45.3 
6.0 
82.7 
4.8 
39.0 
32.0 
7.0 

14.1 
3.3 
6.2 

0.0 
4.5 
22.4 

72.0 
68.9 
3.1 
88.1 
7.0 
31.0 
46.7 
3.4 

18.0 
1.6 
5.1 
1.5 
0.0 
1.6 
8.2 
12.0 

85.5 
78.8 
6.8 
78.5 
10.9 
52.6 
10.1 
5.0 

28.7 
5.5 
10.9 
5.0 
4.3 

3.1 
16.9 

44.1 
42.6 
1.5 
101.5 
17.0 
53.5 
25.2 
5.8 

57.0 
55.0e 
2.0 
76.0 
8.0e 
40.0 
21.0e 
7.0 

19.0 
7.0 
9.0 
2.0 
1.0 

31.7 
4.2 
3.0 
6.5 
4.1 
0.4 
13.4 
29.1 

63.3 
60.3 
3.0 
98.7 
12.7 
60.5 
15.5 
10.0 

24.5 

9.6 
13.9 
1.0 

70.3 
65.7 
4.6 
90.9 
8.7 
52.8 
15.9 
13.5 

40.6 
5.5 
12.5 
13.0 
4.5 
• 

5.2 
21.1 

21.0 

15.7 

20.2 
3.0 
17.2 
.88.2 

21.2 
1.4 
19.8 
124.9 

17.8 
3.3 
14.5 
82.8 

17.0 
1.5 
15.5 
137.6 

24.6 
3.2 
21.5 
139.3 

22.4 
1.7 
20.7 
113.0 

12.0 
0.1 
11.9 
38.8 

16.9 
1.7 
15.2 
123.5 

29.1 
4.5 
24.6 
108.2 

21.0 
2.0 
19.0 
130.0 

15.7 
1.8 
13.9 
143.5 

21.1 
1.4 
19.7 
140.9 

09.1. 
09.1.1. 

09.1.2. 

09.1.3. 
09.1.4. 

' 

~ 

i 

1j 

Equipment  and  accessories, incl.  repairs 
Equipment  for the reception, recording and 
reproduction of sound and  pictures 
Photographic and  cinematographic 
equipment and optical  instruments 
Data processing  equipment 
Other major  durables for recreat. and  culture 

43.5 
6.8 

46.0 
10.2 

46.2 
9.2 

16.0 
1.1 

24.1 
6.4 

40.2 
7.6 

40.6 
8.5 

43.5 
13.1 

45.9 
8.6 

54.9 
9.6 

48.7 
8.8 

15.4 
7.0 

51.6 
9.3 

52.6 
9.0 

46.0 
8.0e 

45.1 
7.4 

52.8 
11.6 

1.2 

4.9 
2.7 

0.6 

3.8 

2.6 

0.9 

0.9 

0.5 

1.8 

4.8 

2.3 

1.8 

1.0 

3.7 

2.5 

5.0e 

2.2 

1.8 

3.7 
2.4 

2.8 
2.2 

0.6 
0.1 

1.2 

0.2 
1.5 

0.6 
1.6 

1.5 
4.5 

3.8 
3.5 

1.1 
6.5 

2.5 
2.3 

0.7e 
0.4e 

1.8 
9.0 

2.3 
5.4 

5.0e 

5.1 
1.6 

3.6 
8.3 

page60jff, 

09.1.5. 

09.1.6. 
09.1.7. 
09.1.8. 
09.1.9. 

09.2.A 
09.3. 
09.4. 
10.A 

11. 

11.1. 
11.1.1. 
11.1.2 
11.2. 
12. 

12.1. 
12.1.1. 

12.1.2. 

12.2. 
12.4.A 
12.4.2.A 

12.4.4.A 
12.5.A 
12.6.A 

Games, toys and hobbies, equipment  for 
sport, camping and open-air  recreation 
Recording media for pictures and  sound 
Gardening 
Pets 
Repair of equipment and accessories  for 
recreation and  culture 
Recreational  and cultural  services 
Newspaper, books and  stationery 
Package  holidays 
EDUCATION - commonly paid by 
consumers in Member States 
HOTELS, CAFES AND  RESTAURANTS 

Catering 
Restaurants and  cafés 
Canteens 
Accommodation  services 
MISCELLANEOUS  GOODS  AND 
SERVICES 
Personal  care 
Hairdressing salons and personal  grooming 
establishments 
Appliances, articles, and products  for 
personal  care 
Personal  effects  n.e.c. 
Insurance 
Insurance connected with the dwelling  -
Contents 
Insurance connected  with transport  - Car 
Banking services n.e.c. 
Other services n.e.c. 

B 
6.5 

DK 

10.1 

D 
11.5 

6.0 
8.1 
6.0 
1.3 

27.7 
22.1 
31.4 
: 

5.2 
7.0 
5.3 
1.5 

25.1 
16.4 
12.6 
3.3 

3.6 
8.8 
2.5 
1.7 

24.4 
21.4 
16.8 
4,6 

EL 

5.2 

2.0 
2.6 
0.9 
0.9 

11.3 
19.7 
2.6 
13.7 

E 
5.8 

F 
9.9 

IRL 
5.7 

I 
8.2 

L 

NL 

5.8 

8.9 

A 
10.9 

P 
2.5 

FIN 
13.0 

S 
9.0 

UK 
8.0 

IS 
13.0 

N 
10.7 

5.3 
1.2 
1.0 
2.5 

17.5 
19.9 
7.8 
1.2 

8.8 
6.8 
2.5 
2.0 

2.9 
5.8 
3.3 
11.7d 

24.7 
21.9 
1.4 
3.7 

29.4 
24.3 
30.6 
6.0 

3.6 
6.9 
3.6 
0.4 

17.1 
22.1 
: 
8.6 

3.8 
9.4 
5.0 
1.2 

21.6 
20.1 
50.0 
3.4 

6.6 
10.4 
8.1 
1.4 

34.0 
34.0 
16.4 
3.0 

4.4 
10.0 
6.2 
1.9 

29.1 
18.4 
16.8 
3.9 

2.3 

1.5 

9.7 
10.5 
3.2 
0.8 

2.9 
6.9 
4.4 
0.6 

19.6 
30.4 
22.0 
1.3 

5.6 
10.9 
2.9d 
5.2 

23.4 
22.7 
9.5 
1.7 

4.0 
6.0 
9.0 
1.0 

34.0 
20.0 
30.0 
11.0 

5.2 
6.6 
2.Î 
2.1 

5.9 
6.9 
1.9 
2.2 

46.6 
27.3 
24.5 
« 

35.8 
32.0 
20.2 
1.8 

70,6 

66.9 

68.4 

90,4 

117.8 

91.2 

156.9 

119.5 

63.6 

48.6 

157.4 

121.7 

80.4 

47,7 

127.0 

64.8 

45.4 

65.4 
61.1 
4.3 
5.2 
59.5 

59.5 
59.5 

7.4 
66.0 

52.3 
46.8 
5.5 
16.1 
46.9 

84.2 
80.3 
3.9 
6.2 
64.3 

111.9 
109.1 
2.8 
5.9 
43.5 

71.3 
54.7 
16.6 
'  19.9 
74.2 

153.6 
144.8 
8.8 
3.4 
37.9 

89.6 
84.9 
4.7 
30.0 
84.1 

59.7 
56.3 
3.4 
3.9 
53.3 

39.8 
37.0 
2.8 
8.8 
53.1 

114.8 
107.9 
6.9 
42.6 
50.2 

119.5 
111.4 
8.1 
2.2 
47.2 

73.1 
72.7 
0.4 
7.3 
40.5 

43.4 
37.0 
6.4 
4.3 
40.0 

123.0 
116.0 
7.0 
4.0 
48.0 

61.0 
51.8 
9.2 
3.8 
77.7 

40.4 
37.0 
3.3 
5.0 
35.0 

29.4 
13.1 

19.9 
7.8 

24.5 
10.7 

24.1 
3.8 

25.7 
9.7 

31.1 
11.4 

25.6 
11.7 

39.3 
21.3 

29.6 
13.2 

25.2 
10.6 

27.4 
10.5 

30.6 
15.0 

23.9 
9.9 

18.8 
6.8 

26.0 
7.0 

33.8 
14.6 

24.3 
9.8 

16.3 

12.1 

13.8 

20.2 

16.0 

19.7 

13.9 

18.0 

16.4 

14.6 

16.9 

15.6 

14.0 

12.0 

19.0 

19.1 

14.5 

6.9 
8.7 
1.2 

8.5 
3.5 
1.3 

7.6 
3.5 
11.0 

2.2 
20.4 
13.7 

9.4 
5.7 
2.3 

3.4 
2.0 
5.3 

10.5 
.11.6 
0.5 

11.1 
: 
18.1 

5.7 
4.0 
0.5 

3.4 
0.1 
8.1 

13.9 
11.7 
5.1 

6.6 
7.0 
10.5 

5.3 
2.5 
0.6 

1.9 
1.1 
3.4 

30.3 
1.8 
* 

10.9 
5.5 
0.5 

1.8 
3.2 
9.5 

5.0 
0.3 
7.0 

8.8 
9.8 
3.5 

6.3 
0.3 
9.0 

12.7 
7.0 
.  2.7 

4.4 
2.1 
1.0 

10.8 
5.3 
0.6e 

4.7e 
0.2 
0.3 

9.9 
3.7 
1.4c 

2.3e 
0.9 
2.2 

9.2 
7.3 
2.8 

4.5 
1.5 
3.1 

9.0e 
6.0 
2.0 

4.0 
2.0 
5.0 

7.1 
6.6 
25 

4.1 
13.8 
16.4 

5.4 
5.3 

11 

4.1 
• 
: 

page 61J 

ISSN 0254-1475 

COM(98) 104 final 

DOCUMENTS 

EN 

10  11  09  17 

Catalogue  number  :  CB-CO-98-133-EN-C 

ISBN  92-78-31765-9 

Office  for Official  Publications  of the European  Communities 

L-2985 Luxembourg