Proposal for a Council Regulation (EC) amending Regulation (EC) No 1749/96 concerning the coverage of goods and services of the Harmonized Index of Consumer Prices
Date: 1998-06-04
Institutions: European Commission
Subjects: consumer price, economic statistics, final consumption, goods and services, price index, prices policy

^PIPPlppp^ps* 

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 04.06.1998 

COM(1998) 323  final 

Proposal for a 

COUNCIL REGULATION (EC) 

amending Regulation (EC) No  1749/96 
concerning the coverage of goods and services of the 
Harmonized  Index of Consumer Prices 

Proposal for a 

COUNCIL REGULATION (EC) 

amending Regulation (EC) No  1749/96 
concerning the geographic and population  coverage 
of the Harmonized  Index of Consumer Prices 

(presented by the Commission) 

EXPLANATORY MEMORANDUM 

Reference  :  Proposal  for  Council  Regulation  (EC)  amending  Regulation  (EC)  No 
1749/96  concerning  the  coverage  of  goods  and  services  of  the 
Harmonized Index of Consumer Prices 

1.  On  7 March  1997 Eurostat published  the first set of Harmonized  Indices  of  Consumer 
Prices  (HICPs)  as  required  by  Article  5  (1)  (b)  of  Council  Regulation  2494/95.  The 
HICPs provide the best statistical basis for international comparisons of consumer price 
inflation  and will be used in particular by the European  Commission  and the  European 
Monetary  Institute for the assessment  of inflation  convergence  under Article  109 (j)  of 
the  Treaty  establishing  the  European  Community.  They  will  subsequently  form  the 
basis of the Monetary Union Index of Consumer Prices (MUICP) to be used by, among 
others,  the  future  European  Central  Bank  for  the  monitoring  of  inflation  in  the 
Economic  and  Monetary  Union. The requirement  to produce  HICPs  in no way puts in 
question the right of Member States to publish their national, non-harmonised,  inflation 
indices, which they may wish to use for national policy purposes. 

2.  Under  Council  Regulation  2494/95, the  Commission  has  so  far  adopted  three  detailed 
regulations  establishing  the  specific  implementing  measures  governing  the  production 
of the HICP.  The first, Commission  Regulation  (EC)  1749/96 on initial  implementing 
measures,  covers  six  technical  areas:  initial  coverage,  newly  significant  goods  and 
services,  elementary  aggregates,  and  minimum  standards  for  quality  adjustment, 
sampling  and prices. The second, Commission Regulation  (EC) No 2214/96, relates to 
the HICP  and  its sub-indices that are transmitted  to and disseminated  by Eurostat.  The 
third,  Commission  Regulation  (EC)  No  2454/97,  defines  minimum  standards  for  the 
quality of the weights used to construct the HICP. 

3.  Article  3 of  Commission  Regulation  (EC)  1749/96, defines  the  initial  coverage  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 
not  yet  fully  covered  by  the  HICP.  The  draft  regulation  amends  Commission 
Regulation (EC)  1749/96 with regard to coverage of goods and services and proposes a 
staged  procedure  on how to  extend  the  coverage  of  the  HICP  in  December  1998  and 
December  1999 (see also Annex la of the draft  regulation). 

4.  The  concept  "household  final  monetary  consumption  expenditure"  in  the  proposed 
regulation 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  draft 
regulation follows the definitions  laid down in the European  System of Accounts (ES A 
1995)  where  they  are  appropriate  for  international  comparisons  of  inflation  (see  also 
Annex lb of the draft  regulation). 

5.  "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 

e_ 

or  mortgage  interest  payments  are  not  regarded  as  part  of  the  inflationary  process  and 
hence  excluded  from  the  HICPs.  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  should  not  normally  be 
included  in CPIs.  The  Statistical  Programme  Committee  (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.  A special Task Force will be  set  up  in  1998 by  Eurostat. 
Until  a  satisfactory  solution  for  the  services  of  owner  occupied  dwellings  can  be  found, 
such  expenditure  is  by  definition  excluded  from  "household  final  monetary  consumption 
expenditure". 

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. 
6% refers to goods and services which according to the draft  regulation would  be added in 
two  stages,  in  December  1998  and  December  1999.  The  remaining  4%  refers  to  the 
geographic and population  coverage of the HICP. Consultation  is proceeding  in parallel on 
a draft  regulation defining the geographic and population coverage. 

The  HICP  Working  Party1  and  its  Task  Forces  have  spent  many  hours  in  numerous 
meetings  over  two  years  discussing  the  coverage  of the  HICP.  The  proposal  has  obtained 
the agreement  of almost  all members of the HICP  Working  Party  including  the  main  users 
DG  II  and  the  EMI2,  who  have  emphasised  that  the  coverage  of  the  HICP  should  be  as 
broad  as possible with respect to consumer price inflation. 

1 Group of experts 
2  However, the EMI  has  not been formally  consulted 

3 

Proposal  for 

COUNCIL REGULATION (EC) No [xx/98] 
of  [date] 
amending Regulation  (EC) No 1749/96 
concerning the coverage of goods and services of the 
Harmonized  Index of Consumer Prices 

(Text with EEA  relevance) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European  Community, 

Having  regard  to  Council  Regulation  (EC)  No  2494/95  of  23  October  1995  concerning 
harmonized indices of consumer prices1, and in particular Articles 4 and 5 (3) thereof, 

Having regard to the proposal from the  Commission, 

After  consulting the European Monetary Institute, 

Whereas, by virtue of Article 5 (1) (b) of Regulation (EC) No 2494/95, each Member  State 
is  required  to  produce  a Harmonized  Index  of  Consumer  Prices  (HICP)  starting  with  the 
index for  January  1997; the requirement  to produce  HICPs in no way puts  in question  the 
right  of Member  States to publish their  national, non-harmonised,  inflation  indices,  which 
they may wish to use for national policy purposes; 

Whereas  Commission  Regulation  (EC)  No  1749/962  set  down  an  initial  coverage  for 
HICPs  that  was  restricted  to  those  goods  and  services  covered  by  all  or  most  national 
Consumer  Price Indices  (CPIs); whereas the  prices  to be taken  for the HICP, in  particular 
the  treatment  of  subsidies,  rebates  and  reimbursements,  require  harmonized  definitions; 
whereas the geographic and population coverage of the HICPs need still to be  specified; 

Whereas Article 3 of Regulation  (EC) No 2494/95 requires that the HICP  should  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; whereas  prices  not 
actually paid by consumers  in such purchases or opportunity  costs or interest payments  are 
not appropriate for international comparisons of consumer price  inflation; 

Whereas  it  is  recognised  that  changes  in  reimbursements  might  not  have  an  impact  on 
measures  of  inflation  in  a  broader  context  but  they  do  form  an  essential  part  of  the 
inflationary  process affecting  consumers and therefore  need to be reflected  in the HICP; 

1  OJ L 257, 27.10.1995, p.  1. 
2  OJL 229,  10.9.1996, p. 3. 

. 
\J 

Whereas  the  Statistical  Programme  Committee  (SPC)  has  not  delivered  an  opinion  within  the 
time limit laid down by the chairman; whereas in this case following  the procedure laid down in 
Article  14 paragraph  2  of  Regulation  (EC)  No  2494/95  the  Commission  shall,  without  delay, 
submit to the Council a proposal relating to the measures to be taken; 

HAS ADOPTED THIS REGULATION: 

Article 1 

Annex  I  of  Regulation  (EC)  No  1749/96  is  replaced  by  Annexes  la  and  lb  of  the  present 
Regulation. 

Article 2 

In the first  indent of Article  1  of Regulation (EC) No  1749/96 the word  "initial" is deleted. 

Article 3 

Sub-paragraph (a) of Article 2 of Regulation (EC) No  1749/96 is replaced by the following: 

"  (al)  The 'coverage' of the HICP is defined  as those goods and services which are included in 
household  final  monetary  consumption  expenditure  (see  Article  3  (a2)  below).  It  is 
classified  according  to  the  4-digit  categories  and  sub-categories  given  in  Annex  la  to 
this regulation, which derive from  the COICOP international classification  and shall be 
known as COICOP/HICP (classification  of individual  consumption by purpose  adapted 
totheneedsofHICPs). 

(a2) 

'Household  final  monetary  consumption  expenditure'  is  defined  as  that  part  of  final 
consumption  expenditure3  which  is  incurred  by  households4  in monetary  transactions5 
in  one  or  both  of  the time periods  being  compared,  and  specified  in  Annex  lb  to  this 
regulation.  Unless  otherwise  stated,  Annex  lb  follows  the  definitions  laid  down  in the 
European  System  of  Accounts  (ESA)  19956. 'Household  final  monetary  consumption 
expenditure' consists of expenditure incurred on goods and services that are used for the 
direct satisfaction  of individual needs or wants either by: 

resident7 households on the domestic territory or abroad, or 
(a2a) 
(a2b)  resident and non-resident households on the domestic territory, or 
(a2c) 

the population  of households  within the  scope  of the national  household  budget 
survey. 

(a3)  Prices  used  in  the  HICP  are  the  purchaser  prices8  paid  by  households  to  purchase 
individual  goods  and  services9  in  monetary  transactions.  Where  goods  and  services 

3  Annex  lb No 4 to 27 
4  Annex  lb No 1 
5  Annex  lb No 3 
6  Council  Regulation  (EC) No 2223/96 of 25.6.1996, OJL  310,  13.11.1996 
7  Annex  lb No 2 
8 
Annex  lb No  28 

r 

have  been  available  to  consumers free of  charge,  and subsequently  an actual  price  is 
charged, then the change from a zero price to the actual price, and vice-versa, should be 
taken into account in the HICP. 

(a4)  The  'weights' of  the HICP are the  aggregate  expenditure  by households  on any  set  of 
goods  and  services  covered  by  the  HICP  expressed  as  proportion  of  the  total 
expenditure on all goods and services covered. 

" 

Article 4 

Article 3 of Regulation (EC) No  1749/96 is replaced by the following: 

" 

Coverage 

1.  HICPs compiled from price changes and weights  for each category  of household final 
monetary  consumption  expenditure  given  in  Annex  la  accounting  for  more  than  one 
part in a thousand of the total expenditure  covered  by all  those categories  included as 
specified in Articled (2), shall be deemed comparable. 

2, 

The coverage of the HICP shall be extended, as follows: 

(a) 

(b) 

(c) 

Starting with the production of the HICP for January  1997, Member States shall 
process the data collected covering those categories marked as 'initial coverage' 
as specified in Annex la. 

On  but  not  before  the  production  of  the  HICP  for  December  1998,  Member 
States shall process the data collected covering  also those categories marked as 
'December  1998' as specified in Annex la. 

On  but  not  before  the  production  of  the  HICP  for  December  1999,  Member 
States shall process the data collected covering  also those  categories marked as 
'December 1999' as specified in Annex la. 

" 

Article 5 

In  Article  4  of  Regulation  (EC)  No  1749/96  the  words  "Annex  I" are  replaced  by  the  word 
"Annex la". 

Article 6 

This Regulation shall enter into force on the twentieth day following that of its publication in the 
Official  Journal of the European Communities. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

9  Annex  lb No 29 

For the Council 

The coverage of the HICP shall include the following categories of COICOP/HICP: 

ANNEX Ta 

Code 

COICOP/HICP Heading 

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 
02.2.1 

FOOD AND NON-ALCOHOLIC  BEVERAGES 
Food 
Bread and cereals 
Meat 
Fish 
Milk, cheese and eggs 
Oils and  fats 
Fruit 
Vegetables including potatoes and other tubers 
Sugar, jam, honey, syrups, chocolate and  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 
Tobacco 

02.3 
02.3.1 

Narcotics 
Narcotics 

03. 
03.1 
03.1.1 
03.1.2 
03.1.3 
03.1.4 
03.2 
03.2.1 
03.2.2 
04. 

04.1 
04.1.1 
04.1.2 

CLOTHING  AND  FOOTWEAR 
Clothing 
Clothing materials 
Garments 
Other articles of clothing and clothing accessories 
Dry-cleaning, repair and hire of clothing 
Footwear 
Shoes and other  footwear 
Repair and hire of  footwear 
HOUSING, WATER, ELECTRICITY, GAS AND 
OTHER  FUELS 
Actual rentals for housing 
Actual rentals paid by tenants 
Other actual rentals 

04.2 
04.2.1 
04.2.2 

Imputed rentals for  housing 
Imputed rentals of owner-occupiers 
Other imputed rentals 

Initial 
Coverage 
Jan.  1997 

Addition 
December 
1998 

Addition 
December 
1999 

Excluded 

• 

• 

full 
full 
full 
full 
full 
full 
full 
full 
full 

full 
full 

full 
full 
full 

full 

full 
full 
full 
full 

full 
full 

part^ 
partlu 

full11 
full11 

lllllilllll 

iiiiiili 
excluded 

: 

i 
: 

excluded  u 
excluded12 

10  Relates to the practice followed  in the national CPI 
1 '  Refers to all rentals actually paid by tenants, i.e. the rentals the tenant pays to the landlord regardless  of any 
social benefits the tenant receives from  public authorities (including payments which at the tenant's discretion 
go directly to the landlord); see also Annex lb No 12b 

12  This does not prejudge the coverage of owner occupied housing in general 

^ 

—-Pag?T' 

Code 

COICOP/HICP Heading 

04.3 
04.3.1 

04.3.2 

04.4 
04.4.1 
04.4.2 
04.4.3 
04.4.4 
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 
05.2.1 
05.3 

05.3.1 
05.3.2 
05.3.3 
05.4 
05.4.1 
05.5 
05.5.1 
05.5.2 
05.6 
05.6.1 
05.6.2 
06. 
06.1 
06.1.1 

... 

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 
Refuse  collection 
Sewerage  services 
Water supply 
Other services relating to the dwelling n.e.c. 
Electricity, gas and other  fuels 
Electricity 
Gas 
Liquid  fuels 
Solid  fuels 
Hot water, steam and ice 
FURNISHINGS, HOUSEHOLD EQUIPMENT AND 
ROUTINE MAINTENANCE  OF THE HOUSE 
Furniture, furnishings  and decorations, carpets and other 
floor coverings and  repairs 
Furniture and  furnishings 
Carpets and other floor  coverings 
Repair of furniture,  furnishings  and floor coverings 
Household  textiles 
Household textiles 
Heating and cooking appliances, refrigerators,  washing 
machines and similar major household  appliances, 
including fittings and  repairs 
Major household appliances whether electric or not 
Small electric household  appliances 
Repair of household  appliances 
Glassware, tableware and household  utensils 
Glassware, tableware and household  utensils 
Tools and equipment for house and garden 
Major tools and equipment 
Small tools and miscellaneous  accessories 
Goods and services for routine household  maintenance 
Non-durable household  goods 
Domestic services and home care services 
HEALTH 
Medical products, appliances and  equipment 
Medical products, appliances and  equipment 

Initial 
Coverage 
Jan.  1997 

Addition 
December 
1998 

Addition 
December 
1999 

Excluded 

•e 

; 

,, 

si 

: 

full1* 
full15 
full15 

' 

full13 

full13 

part14 
part14 
part14 
full 

full 
full 
full 
full 
full 

s 

s-

% 

' 

i 

' 

' / '• 

, * *  1 

; 

full 
full 
full 

full 

full 
full 
full 

full 

full 
full 

full 
full 

%  _,%\; 

t  f.  ' 

part16 

full17 

13  Refers  to expenditure which tenants or owner-occupiers  incur on materials and services for minor  maintenance 
and  repairs; following  a decision  on  the  treatment  of owner  occupied  housing, the coverage  of this  categories 
might need to be extended to include expenditure  for  major  decoration, maintenance and repair of the  dwelling 
and  for  extensions  and  conversions  of  the dwelling  not typically  paid  by tenants; see also Annex  lb No  4  and 
15 
Refers to expenditure according to  consumption 
Refers  to separately  identifiable  charges for specific  services relating to the dwelling whether or not  consumers 
pay  according  to  consumption  that  is,  excluding  payments  for  services  financed  out  of  general  taxation;  see 
also  Annex  lb No  9 and  29 
Refers  to health  goods outside the social security  system 

Code 

COICOP/HICP Heading 

06.2 
06.2.1 
06.2.2 
06.2.3 
06.3 
06.3.1 
07. 
07.1 
07.1.1A 
07. LIB 
07.1.2 
07.1.3 
07.2 
07.2.1 
07.2.2 
07.2.3 
07.2.4  -
07.3 
07.3.1 
07.3.2 
07.3.3 
07.3.4 
07.3.5 
07.3.6 
08. 
08.1 
08.1.1 
08.1.2 
08.1.3 
09. 
09.1 

09.1.1 

09.1.2 

09.1.3 
09.1.4 
09.1.5 

Out-patient services 
Medical services 
Dental services 
Paramedical services 
Hospital services 
Hospital services18 
TRANSPORT 
Purchase of vehicles 
New motor cars 
Second-hand motor cars 
Motor cycles 
Bicycles 
Operation of personal transport equipment 
Spares parts and accessories 
Fuels and lubricants 
Maintenance and repairs 
Other services in respect of personal transport equipment 
Transports services 
Passenger transport by railway 
Passenger transport by road 
Passenger transport by air 
Passenger transport by sea and inland waterway 
Other purchased transport services 
Combined tickets 
COMMUNICATIONS 
Communications 
Postal services 
Telephone and telefax equipment 
Telephone, telegraph and telefax services 
RECREATION AND CULTURE 
Audio-visual, photographic and data processing 
equipment and accessories, including repairs 
Equipment for the reception, recording and reproduction of 
sound and pictures 
Photographic and cinematographic equipment and optical 
instruments 
Data processing equipment 
Recording media for pictures and sound 
Repair of audio-visual, photographic and data processing and 
accessories 

Initial 
Coverage 
Jan. 1997 

Addition 
December 
1998 
r 
full17 
full17 
full17 

Excluded 

Addition 
December 
1999 

; 

-

; 

i 

, 

i 

j 

i 
: 

: 

\ 

' 

full 
full 
full 
full 

full 
full 
full 
fulliy 

full 
full 
full 
full 
full 
fuU*u 

full 
full 
full 

full 

full 

full 
full 
full 

17 

18 

19 

20 

Full coverage refers to that part of expenditure on health  goods and services (other than hospital  out-patient 
services) which is paid by the consumer and not reimbursed  by government,  social security or NPISHs; see 
Annex lb No  12a and the methodological  details of  inclusion  as specified  in accordance with the procedure 
laid down in Article 14 of Council Regulation (EC) No 2494/95 
The methodological details and the timetable of inclusion shall be specified  in accordance with the procedure 
laid down in Article 14 of Council Regulation (EC) No 2494/95 
Includes driving  licences, road  worthiness  tests,  motor  associations  fees,  tolls  for  bridges,  tunnels, shuttle-
ferries, and motorways; excludes licences to own or use vehicles; see also Annex lb No 9, 18, and 19b 
Refers to tickets covering two or more modes of transport and the expenditure cannot be apportioned between 
them 

^ 

Page tT 

Code 

COICOP/HICP Heading 

Initial 
Coverage 
Jan.  1997 

Addition 
December 
1998 

Addition 
December 
1999 

Excluded 

09.2 
09.2.1 
09.2.2 
09.3 

09.3.1 

09.3.2 
09.3.3 
09.4 
09.4.1 
09.4.2 

Other  major durables  for  recreation  and culture 
Other major  durables  for recreation  and culture 
Repair of other major  durables for  recreation  and  culture 
Other  recreational  items and equipment;  flowers, 
gardens and  pets 
Games, toys and hobbies, equipment  for sport, camping and 
open-air  recreation 
Gardening 
Pets 
Recreational  and cultural  services 
Sporting and  recreational  services 
Cultural  services 

09.4.3 

Games of chance 

09.5 
09.5.1 
09.5.2 
09.5.3 
09.5.4 
09.6 
09.6.1 
10. 
10.1 
10.1.1 
10.1.2 
10.1.3 
10.1.4 
11. 
11.1 
11.1.1 
11.1.2 
11.2 
11.2.1 
12. 
12.1 
12.1.1 
12.1.2 

.. 

Newspapers,  books and stationery 
Books 
Newspapers  and periodicals 
Miscellaneous  printed  matter 
Stationery and drawing  materials 
Package  holidays 
Package  holidays 
EDUCATION 
Educational  services 
Pre-primary and primary education 
Secondary  education 
Tertiary  education 
Education  not definable  by level 
HOTELS, CAFES AND  RESTAURANTS 
Catering 
Restaurants and  cafes 
Canteens 
Accommodation  services 
Accommodation  services 
MISCELLANEOUS  GOODS AND SERVICES 
Personal  care 
Hairdressing salons and personal grooming  establishments 
Appliances, articles and products for personal care 

12.1.3 

Personal care services n.e.c. 

12.2 
12.2.1 
12.2.2 

Personal  effects  n.e.c. 
Jewellery, clocks and  watches 
Other personal  effects 

excluded 

full 
full 

full 

full 
full 

full21 
full22 

part23 
full 
full 
part23 

full 

part25 

full 
part23 

full24 

full24 

full24 
full24 
full24 
full24 

full24 

part23 

full24 

full 
full 

full 
full 

• 

excluded 

. 

21 

22 

2A 

Includes  fees  or  subscriptions  to  sport  clubs  and  fitness  centres;  it  also  includes  payments  for  hunting  and 
fishing  licences  if the  government  uses  the  issue  of  licences  to  organise  some  proper  regulatory  function;  see 
also Annex  lb No 9 and  19b 
Includes  entrance  fees  to  museums,  fees  for  libraries, and  licence  fees  and  subscriptions  to TV  and  radio; see 
also Annex  lb No 9 and  10 
Includes educational  goods and services only  if they are fully  paid  by consumers 
Full  coverage  refers  to  that  part  of  expenditure  on  educational  goods  and  services  which  is  paid  by  the 
consumer  and  not  reimbursed  by  government,  social  security  or  NPISHs;  see  Annex  lb  No  12a  and  the 
methodological  details  of  inclusion  as  specified  in  accordance  with  the  procedure  laid  down  in  Article  14 of 
Council  Regulation  (EC) No 2494/95 
Refers  to  computer  courses,  language  courses,  typing  courses,  and  other  such  courses  which  are  fully  paid  by 
the  consumer 

A^ 

"PaueT 

Code 

COICOP/HICP Heading 

12.3 
12.3.1 
12.4 

Social  protection 
Social protection  services 
Insurance 

12.4.1 

12.4.2 
12.4.3 
12.4.4 
12.4.5 
12.5 
12.5.1 

Insurance connected with the dwelling 
Insurance connected with health 
Insurance connected  with transport 
Other  insurance 
Financial services  n.e.c. 
Financial services n.e.c. 

12.5.2 

12.6 
12.6.1 

Other services  n.e.c. 
Other services n.e.c. 

Initial 
Coverage 
Jan.  1997 

Addition 
December 
1998 

Addition 
December 
1999 

Excluded 

part26 

Life insurance 

excluded 

part27 

full2* 

part31 

part34 

full36 

FISIM 

fuuzy, 3U 
full32'30 
6,1133.30 

full35 

excluded 

26 

27 

28 

29 

30 

31 

32 

33 

34 

35 

36 

Refers to crèches, nurseries, play-schools  and kindergartens which are not an obligatory part of the  educational 
system;  covered  are  only  those  expenditure  which  are  paid  by  the  consumer  and  not  reimbursed  by 
government,  social  security  or  NPISHs;  see  also  Annex  lb  No  12a;  other  items  within  code  12.3.1  such  as 
retirement  homes,  schools  for  the  disabled,  home  cleaning  services,  and  meal  programmes  are  subject  to  the 
same arrangement as described  in footnote  18 
Refers to service charges for contents-insurance 
Refers  to all service charges paid by owner-occupiers  and tenants for the kinds of insurance typically  taken  out 
by tenants against  fire, theft,  water damage, etc.; see also Annex lb No 7, 8 and 24; following  a decision  on the 
treatment  of  owner  occupied  housing,  the  coverage  of  this  categories  might  need  to  be  extended  to  include 
service  charges  paid  by  owner-occupiers  for  the  kinds  of  insurance  for  the  dwelling  typically  taken  out  by 
landlords 
Refers  to service charges for  private sickness and  accident  insurance; see also Annex  lb No  7, 8 and 24 and the 
methodological  details of inclusion  of category  "06. Health" as specified  in accordance  with the procedure  laid 
down  in Article  14 of Council Regulation  (EC) No 2494/95 
The  methodological  details  and the timetable  of  inclusion  shall  be specified  in accordance  with  the  procedure 
laid down  in Article  14 of Council  Regulation  (EC) No 2494/95. The  implementation  may  be scheduled  for an 
earlier date 
Refers to service charges for  insurances  in respect of personal transport equipment 
Refers  to  service  charges  in  respect  of  personal  transport  equipment,  travel  insurance  and  luggage  insurance; 
see also Annex  lb No 7, 8 and 24 
Refers  to  service  charges  for  insurance  such  as  civil  liability  for  injury  or  damage  to  third  parties  or  their 
property  not arising from  the operation  of personal transport equipment; see also Annex  lb No 7, 8 and 24 
Refers  to banking service charges which are not expressed  as proportion  of the transaction  value 
Refers  to  financial  services  including  banking  services;  not  covered  are  service  charges  for  private  or  public 
pension  funds,  which  are a kind  of  life  insurance  but restricted  to specific  groups  of persons, as well as  interest 
payments; see also Annex  lb No 21 and 23 
Includes  fees  for  the  issue  of  passports,  birth,  marriage  or  death  certificates,  and  dues  for  membership  to 
professional  associations  if they  can  be considered  as  payments  for  the  services  rendered;  see  Annex  lb  No 9 
and  19 

•nn 

A 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

ANNEX Th 

Definition  of Household  final  monetary consumption  expenditure 

The household  sector  includes  individuals  or groups of individuals  (as defined  in ES A 
2.76.a  and  2.76.b)  and  may  or  may  not  include  institutional  households  (as  defined  in 
ESA 2.76.b). 

A resident  household  has  its centre  of  economic  interest within the economic  territory 
of  the  Member  State,  which  may  or  may  not  include  territorial  or  extraterritorial 
enclaves (as defined  in ESA 2.04. to 2.07.). 

A  monetary  transaction  is  an  economic  flow  that  is  an  interaction  between 
institutional  units  by  mutual  agreement,  where  the  units  involved  make  or  receive 
payments,  or  incur  liabilities  or  receive  assets  denominated  in  units  of  currency.  By 
convention  the  collection  of  household  refuse  shall  be  considered  as  interaction  by 
mutual  agreement.  Transactions  that  do  not  involve  the exchange  of cash,  or  assets  or 
liabilities  denominated  in  units  of  currency,  are  non-monetary  transactions.  Intra-unit 
transactions  are  normally  non-monetary 
transactions 
involving  more than one institutional  unit occur among transactions  in products  (barter 
of products), distributive transactions  (remuneration  in kind, transfers  in kind,  etc.) and 
other transactions (barter of non-produced  non-financial assets). 

transactions.  Non-monetary 

Household final monetary consumption expenditure covers 
the following  borderline cases: 

It covers items not treated as intermediate consumption,  like materials for  small  repairs 
to and interior decoration of dwellings of a kind typically carried out by tenants as well 
as owners,  and  materials  for  repairs  and  maintenance  to  consumer  durables,  including 
vehicles. 

It  covers  items  not  treated  as  capital  formation,  in  particular  consumer  durables,  that 
continue  to  perform  their  function  in  several  accounting  periods;  this  includes  the 
transfer  of ownership of some durables from  an enterprise to a household. 

It covers financial  services directly  charged. 

It covers non-life  insurance services by the amount of the implicit service charge. 

It covers all  expenditure  financed  out  of non-life  insurance  claims, including  payments 
made  directly  by  the  insurance  companies  to  the  garages,  hospitals,  doctors,  etc.  This 
implies that the full  price paid by households or by insurance companies to the garages, 
hospitals, doctors, etc. is covered by the HICP. 
Non-life  insurance  claims  are  the  amounts  which  insurance  enterprises  are  obliged  to 
pay  in  settlement  of injuries  or  damage  suffered  by persons or goods. They  are  current 
transfers  from  the insurance companies to the receiving households and, therefore,  enter 
into the households' disposable  income. Any  expenditure  made as a result,  for  example 
payments  to  garages,  hospitals,  or  doctors,  is  treated  as  being  incurred  by  the 
households  and  not by the  insurance  companies. It is irrelevant  whether the  households 

actually  make  the  expenditure  before  the  claims  are  paid  out,  which  then  look  like 
social  security  reimbursements,  or  whether  the  payments  are  made  directly  by  the 
insurance  companies  to the garages, hospitals, etc. In the  latter  case, the companies  are 
treated  merely  as  agents  acting  on  behalf  of  the  households  who  are  still  treated  as 
incurring the expenses. 

9. 

It  covers  payments  by  households  for  licences,  permits,  etc.  which  are  regarded  as 
purchases  of  services.  If  the  government  uses  the  issue  of  licences  to  organise  some 
proper  regulatory  function,  such  as  checking  the  competence  or  qualification  of  the 
person  concerned, the payments made  should  be treated  as a purchase  of services  from 
government  and  the  prices  taken  in  the  HICP,  but  if  the  licences  are  being  granted 
automatically  on  payment  of  the  amounts  due,  payments  should  be  treated  as  direct 
taxes  and  not  prices.  Driving  or  pilot's  licences,  television  or  radio  licences,  firearm 
licences, museum  or library  admissions, garbage  disposal  fees,  etc. are treated  in most 
cases as purchases  of services rendered  by government,  whereas  licences  on the use of 
vehicles, boats or aircraft  are treated in most cases as taxes. 

10. 

It  covers  the  purchase  of  output  at  not  economically  significant  prices,  e.g.  entrance 
fees for a museum. 

Household final monetary consumption  expenditure does not cover 
the following borderline cases: 

11. 

It  does  not  cover  income  in  kind  because  it  is  no  monetary  transaction  (although 
according to ES A 3.76.b it is included in final  consumption expenditure). 

12. 

(a) 

It does not cover social transfers  in kind received  by households, including those 
parts of expenditure initially made by households for which they are  subsequently 
reimbursed  by  social  security,  government  units  or  NPISHs,  e.g.  for  medical 
expenses  or education.  When a household  purchases  a good or service for  which 
it is subsequently  reimbursed  in part or in whole, the household  is treated  merely 
as  agents  acting  on behalf  of  a social  security  fund,  government  unit  or NPISH. 
The  amounts  reimbursed  to  households  are  treated  as  social  transfers  in  kind 
made  by  social  security,  government  units  or NPISHs.  They  are  not  recorded  as 
cash  transfers  to  households  and  do  not  form  part  of  households'  disposable 
incomes.  This  accounting  treatment  leads  to  the  same  result  as  when  a  social 
security  fund  purchases  the  goods  and  services  from  market  producers  and  then 
re-sells  them to households  at  low non-market  prices. This  implies  that the  price 
taken for the HICP is the amount paid by the household less the reimbursement. 

(b)  All  other  rebates  by public  authorities, especially  housing  payments  to tenants  in 
order to reduce their rents (including  payments which at the tenant's discretion  go 
directly  to  the  landlord),  are  considered  as  social  benefits  in  cash  and,  therefore, 
enter  into  households'  disposable  income.  This  implies  that  the  full  price  of  the 
good or service before the rebate is covered by the HICP. 

13. 

It does not cover  services of owner occupied  dwellings, because these are no monetary 
transactions  (although  according  to  ES A  3.76.a  it  is  included  in  final  consumption 
expenditure). 

13 

14. 

15. 

It does not cover the purchase of dwellings, and items treated as acquisitions  of a non-
produced assets, in particular the purchase of land. 

It  does  also  not  cover  expenditure  that  an  owner-occupier  incurs  on  the  decoration, 
maintenance and repair of the dwelling not typically carried out by tenants. 

16. 

It does not cover the expenditure on valuables. 

17. 

18. 

It does not cover expenditure  by households  owning un-incorporated  enterprises  when 
incurred for business purposes. 

It  does  not  cover  current  taxes  on  income  and  wealth,  which  are  all  compulsory, 
unrequited payments, in cash or in kind, levied periodically  by general government and 
by  the  rest  of  the  world  on  the  income  and  wealth  of  institutional  units,  and  some 
periodic  taxes which  are  assessed  neither  on the  income  nor the  wealth.  Other  current 
taxes include all those payments by households for licences which are to be regarded as 
taxes, such as licences to own or use vehicles, boats or aircraft,  etc. 

. 

19. 

(a) 

It  does  not  cover  subscriptions,  contributions  and  dues  paid  by  households  to 
NPISHs,  like  trade  unions,  professional  societies,  consumers'  associations, 
churches and social, cultural, recreational and sports clubs. 

(b)  However,  if a club,  union,  society  or association  can  be  considered  as  a  market 
producer selling its services at an economically  significant  price, which usually is 
the  case  even  though  the  legal  status  may  be  a non-profit  organisation,  then  the 
subscriptions,  contributions  and  dues  paid  by  households  are  considered  as 
payments  for the services rendered  - not as a transfer  - and, thus, covered  by the 
HICP. 

It does not cover voluntary transfers  in cash or in kind by households to charities, relief 
and aid organisations. 

It does  not  cover payments  of property  income, including  interest.  Property  income  is 
the income receivable by the owner of a financial asset or a tangible non-produced  asset 
in  return  for  providing  funds  to,  or  putting  the  tangible  non-produced  asset  at  the 
disposal  of,  another  institutional  unit.  Under  the  terms  of  the  financial  instrument 
agreed between them, interest is the amount that the debtor becomes liable to pay to the 
creditor  over  a  given  period  of  time  without  reducing  the  amount  of  principal 
outstanding. 

It  does  not  cover  compulsory  or  voluntary  social  contributions,  such  as  employers' 
actual social contributions  to social security funds,  insurance enterprises or autonomous 
as  well  as  non  autonomous  pension  funds  administering  social  insurance  schemes  to 
secure  social  benefits  for  their  employees,  or  employees'  social  contributions  payable 
to social security, private funded  and unfunded  schemes. 

It  does  not  cover  life  insurance  and  pension  funding  services  (although  according  to 
ES A  3.76.f  and  g  such  services  are  included  in  final  consumption  expenditure  by  the 
amount of the implicit  service charge). 

20. 

21. 

22. 

23. 

/]^f 

—PagrïT 

24. 

25. 

26. 

27. 

It does  not cover net non-life  insurance premiums. These  are premiums  payable  under 
policies taken out by institutional units. The policies taken out by individual  households 
are those  taken  out  on  their  own  initiative  and  for  their  own  benefit,  independently  of 
their  employers  or  government  and  outside  any  social  insurance  scheme. Net  non-life 
insurance  premiums  comprise  both  the  actual  premiums  payable  by  policy  holders  to 
obtain  insurance  cover  during  the  accounting  period  (premiums  earned)  and  the 
premium  supplements payable out of the property income attributed to insurance policy 
holders,  after  deducting  the  service  charges  of  insurance  enterprises  arranging  the 
insurance.  (NB:  This  service  charge  is  covered  by  the  household  final  monetary 
consumption  expenditure!). Net non-life  insurance premiums  are the amounts  available 
to  provide  cover  against  various  events  or  accidents  resulting  in  damage  to  goods  or 
property,  or harm  to persons  as a result  of natural  or human  causes,  for  example  fires, 
floods,  crashes,  collisions,  sinkings,  theft,  violence,  accidents,  sickness,  or  against 
financial  losses resulting from events such as sickness, unemployment, accidents, etc. 

It  does  not  cover  current  transfers  between  households,  which  consist  of  all  current 
transfers  in cash or in kind made, or received, by resident households to, or from, other 
..resident or non-resident households. 

It does not cover fines and penalties. They are imposed  on institutional  units by  courts 
of  law  or  quasi-judicial  bodies  and  treated  as  compulsory  current  transfers.  Also  not 
covered  are  fines  and  penalties  imposed  by  tax  authorities  for  the  evasion  or  late 
payment of taxes, which cannot usually be distinguished from the taxes themselves. 

It  does  not  cover  lotteries  and  gambling; neither  the  payment  of the  service  charge  to 
the unit organising the lottery or gambling, nor the residual  current transfer  that  is paid 
out to the winners  (although  according  to ES A 4.135 the  service  charge  is  included  in 
final consumption expenditure). 

B 

Definition  of  Price 

28. 

At  the  time  of  purchase,  the  purchaser's  price  is  the  price  for  the  products  the 
purchaser  actually  pays;  including  any  taxes  less  subsidies  on  the  products;  after 
deductions  for  discounts  for  bulk  or  off-peak-purchases  from  standard  prices  or 
charges;  excluding  interest  or  services  charges  added  under  credit  arrangements; 
excluding  any  extra  charges  incurred  as  a  result  of  failing  to  pay  within  the  period 
stated at the time the purchases were made. 

29. 

Goods  and  services  for  individual  consumption  ('individual  goods  and  services')  are 
acquired  by  a  household  and  used  to  satisfy  the  needs  and  wants  of  members  of  that 
household. Individual goods and services have the following  characteristics: 

(a) 

(b) 

It must  be possible to observe  and record the  acquisition  of the  good  or  services 
by an individual  household  or member thereof and also the time at which  it took 
place; 
the household  must  have agreed to the provision  of the  good  or  service  and take 
whatever  action  is  necessary  to  make  it  possible,  for  example  by  attending  a 
school or clinic; 

AS 

-Page  12' 

(c) 

the good or service must be such that its acquisition by one household or person, 
or possibly  by  a small,  restricted  group of  persons, precludes  its  acquisition  by 
other households or persons. 

All  household final consumption  expenditure  is  individual.  By  convention,  all  goods 
and services provided by NPISHs are treated as individual. 

By  convention,  all  government  final  consumption  expenditure  on  education,  health, 
social  security  and  welfare,  sport  and  recreation,  and  culture  should  be  treated  as 
expenditure  on  individual  consumption  services  except  for  expenditure  on  general 
administration,  regulation,  research,  etc.  In addition,  expenditure  on the  provision  of 
housing,  the  collection  of  household  refuse,  and  the  operation  of  transport  system 
should  also  be  treated  as  individual.  The  collective  consumption  expenditure  is  the 
remainder of the government final consumption expenditure. It consists in particular of 
management  and  regulation  of  society,  the  provision  of  security  and  defence,  the 
maintenance  of  law  and  order,  legislation  and  regulation,  the  maintenance  of  public 
health,  the  protection  of  the  environment,  research  and  development,  and  the 
infrastructure and economic development. 

'f £ 

Page 19* 

FINANCIAL STATEMENT 

1. 

Title of operation 

Council  Regulation  (EC)  amending  Regulation  (EC)  No  1749/96  concerning  the 
coverage of goods and services of the Harmonized Index of Consumer Prices. 

2. 

Budget heading involved 

Article B5-604. 

3. 

-Legal basis 

Council Regulation (EC) No 2494/95. 

4. 

Description  of operation 

4.1  General objective 

The aim of the Council  Regulation  is to expedite the programme  of work  leading 
to  Harmonized  Indices of Consumer  Prices  (HICPs) in line with the  convergence 
criteria requirements of the Treaty establishing the European Community.  Council 
Regulation  (EC)  No  2494/95  provides  the  framework  for  detailed  Commission 
Regulations  requiring  Member  States  to  produce  HICPs  following  concepts 
methods  and  practices  which  have  been  proposed  by the  Working  Party1  on CPI 
Harmonization  and  approved  by  the  Statistical  Programme  Committee  following 
the Regulatory Committee procedure. 

Commission Regulation (EC) No  1749/96 of 9 September  1996 gives measures on 
initial  coverage,  treatment  of  newly  significant  goods  and  services,  minimum 
standards  for  procedures  of  quality  adjustment,  minimum  standards  for  prices, 
price indices for elementary aggregates, and minimum standards for  sampling. 

Commission  Regulation  (EC) No  2214/96 of 20 November  1996 defines  the sub-
indices  of  the  HICPs  which  are  produced,  transmitted  and  disseminated  each 
month starting with the index for January  1997. 

Commission  Regulation  (EC)  No  2454/97  of  10  December  1997  defines 
minimum  standards  for  the  quality  of the weights  used  in the  computation  of the 
HICP. 

Group of experts 

Ol 

The Commission  Decision of 9 September  1996 [ref. No C(96)2452] provides  for 
the funding  of part of the additional costs to Member States. 

This draft  Council Regulation amends Regulation (EC) No  1749/96 with regard to 
the  coverage  of goods  and  services. It proposes  a staged  procedure  for  extending 
the  coverage  of  the  HICP  to  include  difficult  categories  such  as  health  and 
educational  services,  where  there  are  major  institutional  differences  between 
Member States. 

In  parallel  consultation  is  proceeding  on  a  draft  Council  Regulation  amending 
Regulation  (EC)  No  1749/96  with  respect  to  the  geographic  and  population 
coverage of the Harmonized Index of Consumer Prices. 

4.2  Period covered and arrangements for  renewal 

The  Council  Regulation  requires  an  implementation  in  stages  of  progressive 
harmonization.  The  first,  in  February  1996, involved  minimal  resources  and  was 
based  almost  entirely  on existing  Consumer  Price  Indices  (CPIs).  The  second,  in 
January  1997, involved  substantial  resources.  The  third  and  fourth,  in  December 
1998 and  1999, will also involve substantial resources. 

5.  Classification  of expenditure or revenue 

DNO  :  CD. 

6. 

Type of expenditure or revenue 

Subvention cofinancing  (66.6%) with national  administrations; 
Administrative expenditure - see paragraph  10. 

7. 

Financial  impact 

7.1  Method of calculating the total cost of the action 

The  proposed  extensions  to  the  coverage  of  the  HICP  are  necessary  to  achieve 
comparability.  However,  they  will  involve  significant  additional  resources  in 
Member States, and in accordance with Article  13 of Council Regulation (EC) No. 
2494/95  the  Commission  (Eurostat)  will  bear  two-thirds  of these  additional  costs 
until the end of the second year of implementation  of the measures. It is estimated 
that costs will not exceed 4,5 million Ecu up to  1998 for the implementation of the 
measures required by the Council Regulation (EC) No. 2494/95 of which the costs 
of this fourth  regulation  will  not  exceed  0,5  million  Ecu during the above  period. 
The  costs  to  the  Commission  of  this  fourth  Regulation  will  therefore  not  exceed 
2/3  of  0,5  million  Ecu.  Some  Member  States  are  better  equipped  to  handle  the 
necessary system changes than others. 

1*6 

7.2  Breakdown of the cost of the action 

Member States will produce a breakdown of the costs of their action as part of the 
process of agreeing contracts. 

8. 

Fraud prevention measures 

Contractual arrangements with Member States will be set in place to ensure appropriate 
actions are undertaken and properly accounted for. 

9.  Elements of cost-effectiveness  analysis 

9.1  Specific and quantified objectives; target population 

Specific objectives: 
Improved and comparable indices of consumer prices. 

Target population: 
Users of price indices in Member States will benefit from improved measures as 
will decisions by the EMI and the Commission as regards both Monetary Union 
and other macro-economic developments. 

9.2  Grounds for the operation 

The  Council  Regulation  should  lead  to  improved  reliability  and  international 
comparability  of the  CPIs of Member  States. It  should  lead too to  a sharing of 
expertise  and  technological  applications  on  CPI  compilation  between  Member 
States. 

Main factor of uncertainty: 
The Council Regulation provides only a framework  within which many technical 
details must be resolved in collaboration with Member States. 

9.3  Monitoring and evaluation of the operation 

The  implementing  measures  provide  for  extensive  monitoring  and 
the 
development  of  appropriate  performance  indicators  by  means  of  questionnaires 
and Eurostat audit missions (see below for costs). 

The Council Regulation provides for  a review by November  1997 and again by 
November  1999. The 1997 review has already been sent to the Secretariat General 
of the Commission for submission to the Council of Ministers. 

10.  Administrative expenditure (Section III, Part A of the budget) 

4<3 

Actual  mobilisation  of  the  necessary  administrative  resources  will  depend  on  the 
Commission's  annual  decision  on  the  allocation  of  resources,  taking  into  account  the 
number of staff and additional amounts authorised by the budgetary  authority. 

10.1  Effect  on the number of posts 

Type of post 

Staff  to be assigned to managing 
the operation 

Permanent 
posts 

Temporary 
posts 

Officials  or 
temporary 
staff 

A 
B 
C 
Other resources 
(experts) 
A-7000 
Total 

VA 
2 
1 
2 

VA 

Duration 

3 years 

Source 

Additional 
resources 

Existing 
resources in 
the DG or 
department 
concerned 
VA 
2 
1 
1 

VA 

The annual cost of existing resources is: 

Officials  (titles Al,  A2, A4, A5) 
Experts (A-1178) 

= 682.500 Ecu x 3 years 
=  98.000 Ecu x 3 years 

Total 

= 2.047.500 
=  294.000 
= 2.341.500 

10.2  Overall financial impact of additional human  resources 

none 

10.3  Increase in other administrative expenditure as a result of the operation 

Ecu 

Budget heading 
A - 7031 Working groups of the 
Statistical Programme 
Committee 

Amounts 
96.000 

Method of calculation 
4 meetings at 8 K Ecu covering 
delegates expenses (x 3 years) 

The costs of the audit  missions  to ten Member  States per year - three days  at  120 Ecu 
per day + fares - is estimated  at 31.800 Ecu: 

A-701 

31.800 Ecu x 3 years 

=  95.400 

STATEMENT OF IMPACT OF THE PROPOSAL ON 
INDUSTRY AND IN PARTICULAR ON SMALL AND 
MEDIUM ENTERPRISES 

Title of proposal: 

Proposal  for  Council  Regulation (EC) amending Regulation  (EC) No  1749/96 concerning  the 
coverage of goods and services of the Harmonized Index of Consumer Prices 

The proposal: 

1.  Taking  account  of  the  principle  of  subsidiarity  why  is  Community  legislation 

necessary in this area and what are the main aims? 

The aim is to expedite a programme of work leading to Harmonized  Indices of Consumer 
Prices  (HICPs)  in  line  with  the  convergence  criteria  requirements  of  the  Treaty 
establishing the European Community. HICPs are designed  for  international  comparisons 
of consumer price inflation.  They will be used  in particular by the European  Commission 
and  the  European  Monetary  Institute  for  the  assessment  of  inflation  convergence  under 
Article  109  (j)  of  the  Treaty  establishing  the  European  Community.  HICPs  will 
subsequently  form  the basis of the Monetary  Union  Index  of  Consumer  Prices  (MUICP) 
to  be  used  by,  among  others,  the  future  European  Central  Bank  for  the  monitoring  of 
inflation  in the Economic and Monetary Union. 

Council  Regulation  (EC) No  2494/95  provides  the  framework  for  detailed  Commission 
Regulations requiring Member States to produce HICPs following  concepts methods  and 
practices  which  have  been  proposed  by  the  Working  Party1  on  CPI  Harmonization  and 
approved  by  the  Statistical  Programme  Committee  following  the  Regulatory  Committee 
procedure.  In  accordance  with  Article  5  (3)  of  the  Council  Regulation,  implementing 
measures  are  necessary  for  ensuring  comparability  of  HICPs  and  for  maintaining  and 
improving  their reliability.  So far  the  Commission  has adopted three detailed  regulations 
establishing  specific  statistical  standards governing the production  of the HICP. The  first, 
Commission  Regulation  (EC)  1749/96  on  initial  implementing  measures,  covers  six 
technical  areas:  initial  coverage,  newly  significant  goods  and  services,  elementary 
aggregates,  and  minimum  standards  for  quality  adjustment,  sampling  and  prices.  The 
second, Commission Regulation (EC) No 2214/96, relates to the HICP and its sub-indices 
that  will  be  transmitted  to  and  disseminated  by  Eurostat.  The  third,  Commission 
Regulation  (EC) No  2454/97,  defines  minimum  standards  for  the  quality  of  the  weights 
used to construct the HICP. 

On  7  March  1997  Eurostat  published  the  first  set  of  Harmonized  Indices  of  Consumer 
Prices  (HICPs)  as  required  by  Article  5  (1)  (b)  of  Council  Regulation  2494/95.  The 
HICPs  provide  the  best  statistical  basis  for  international  comparisons  of  consumer  price 
inflation  and  very  considerable  progress  has  been  made  in  harmonizing  methodologies. 

Group of experts 

£-1 

However,  more  work  remains  to  be  done  to  achieve  further  harmonization  of  consumer 
price indices. 

Article  3  of  Commission  Regulation  (EC)  1749/96  defines  the  initial  coverage  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  not 
fully  covered  by  the  HICP.  The  proposed  regulation  amends  Commission  Regulation 
(EC)  1749/96  with  regard  to  coverage.  The  concept  "household  final  monetary 
consumption  expenditure"  in the  draft  regulation  defines  both  the  goods  and  services  to 
be  covered  by  the  HICP  and  the prices  used  in the  HICP, which  should  be  taken  net  of 
reimbursements, subsidies, and discounts. The draft  regulation follows the definitions  laid 
down  in  the  European  System  of  Accounts  (ESA  1995)  where  they  are  appropriate  for 
international  comparisons  of  inflation.  It  defines  that  the  coverage  of  the  HICP  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 
weight  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 weight and the prices will refer  to the amount actually paid by consumers  net 
of 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. 

2Z 

Taking into account the current state of the technical discussions, the following  goods and 
services  will  not be covered  by the HICP at  least until the year 2000: narcotics,  imputed 
rentals  of owner  occupiers, other imputed  rentals, games of chance, certain  personal  care 
services, life insurance and financial  intermediation services indirectly  measured. 

The impact on business: 

2.  Who will be affected  by the proposal? 

•  which sector of business 

Consumer  price  indices  are  compiled  using  prices  and  weights.  The  weights  are  mainly 
derived  from  already  existing  information.  The  prices  are  collected  from  all  businesses 
providing  goods and services for the direct satisfaction  of consumer needs within the scope of 
household  final  monetary  consumption  expenditure,  hereafter  referred  to  as  "retailers". 
According  to  the  principle  of  subsidiarity,  the  sample  of  retailers  is  defined  by  the  National 
Statistical  Institutes.  They  already  send  price  collectors  to  retailers  to  collect  the  prices  for 
calculating their national consumer price indices (CPIs). The HICPs are mainly  based  on that 
information.  However,  the  proposed  regulation  might  involve  new  data  collection  in  some 
Member  States. The  goods  and  services  that  will  be  added  to the  HICP  are  to  a  large  extent 
provided by the government  sector. 

•  which  size  of  business?  (what  is  the  concentration  of  small  and  medium  sized 

firms?) 

The size of the business is only relevant to the extent that the prices collected  should  correctly 
reflect  the  price  development  of  all  businesses  within  the  concept  of  household  monetary 
consumption  expenditure.  In principle,  all  sizes  of  retailers  are  concerned.  According  to  the 
principle  of  subsidiarity,  the  sample  of  retailers  is  defined  by  the  National  Statistical 
Institutes. 

• 

are  there  any particular  geographic  areas  of the EU  where  these  businesses  are 
found? 

The  geographic  area  is  only  relevant  to  the  extent  that  the  prices  collected  should  correctly 
reflect  the price development  of the whole economic territory of the Member  States within the 
concept of household  monetary  consumption expenditure. All Member  States of the European 
Union, Norway and Iceland are concerned. 

3.  What will businesses  have to do to comply with the proposal? 

National  Statistical  Institutes  send  out  price  collectors  to  retailers.  To  comply  with  the 
proposed  regulation  the  retailers  need  to  give  price  collectors  access  to  their  premises  and 
permission to collect the prices. In practice, the participation  in such surveys is on a voluntary 
basis. 

4.  What economic  effect  is the proposal likely to have? 

• 
• 

on employment? 
on investment and the creation of new businesses? 

2 3 

• 

on the competitive position of businesses? 

An indirect effect,  in so far as the HICPs allow international comparisons of consumer price 
inflation,  and provide the statistical  basis for  the assessment of inflation  convergence  under 
Article  109 (j) of the Treaty establishing the European Community. In Stage III of EMU, the 
HICPs  will  be  used  to  compile  the  Monetary  Union  Index  of  consumer  prices  (MUICP), 
which will be the indicator for monetary policy of the future European Central Bank. A single 
and  stable  currency  is  an  important  step  to  advance  European  integration  and  to  promote 
economic progress with important impact on employment, investment and competition. 

5.  Does the proposal take account of the specific  situation of small and  medium-sized 

firms (reduced or different requirements etc.)? 

According to the principle of subsidiarity, the sample of retailers is defined  by the National 
Statistical  Institutes. They  already  send price  collectors to retailers  to collect  the prices  for 
calculating their national consumer price indices (CPIs). The HICPs are mainly based on that 
information.  The  goods  and  services  that  will  be  added  to the  HICP are to  a  large  extent 
provided  by  the  government  sector.  In  general,  the  participation  in  such  surveys  is  on  a 
voluntary basis. However, the proposed regulation might involve new data collection in some 
Member States. 

Consultation: 

6.  List  the  organisations  which  have  been  consulted  about  the  proposal  and  outline 

their main views. 

The  European  Advisory  Committee  on  Statistical  Information  in  the  Economic  and  Social 
Spheres (CEIES)2, DG II of the  Commission, the European Monetary Institute, and  Central 
banks of Member  States are participating  actively  in the meetings of the Working  Party3 on 
CPI Harmonization and its Task Forces. They emphasised that the HICP should have as broad 
a coverage as possible and are, therefore, in favour of the proposed regulation. 

established  by  Council  Decision  91/116/EEC;  the  Committee  is  made  up  of  representatives  from  the 
scientific, economic and social fields  covering producers and users of statistical  information 
Group of experts 

£v 

COMPLEMENTARY STATEMENT CONCERNING EFTA 
COUNTRIES 

Title :  Proposal for Council Regulation (EC) amending Regulation (EC) No 1749/96 
concerning  the coverage  of goods  and  services  of the Harmonized  Index of 
Consumer Prices 

Impact on EFTA countries 

EFTA countries have been involved in discussions of the Statistical Programme Committee 
and the Working Party on the Harmonization  of  Consumer  Price Indices. They are  fully 
aware of the proposals for  a Regulation  and their views have been taken into account in 
preparing  the  draft.  They  intend  to  compile  Harmonized  Indices  of  Consumer  Prices 
(HICPs) in accordance with this Regulation. 

2s-

EXPLANATORY MEMORANDUM 

Reference  :  Proposal  for  Council  Regulation  (EC)  amending  Regulation  (EC)  No 
1749/96  concerning  the  geographic  and  population  coverage  of  the 
Harmonized Index of Consumer Prices 

1.  On  7  March  1997  Eurostat  published  the  first  set  of  Harmonized  Indices  of  Consumer 
Prices  (HICPs)  as  required  by  Article  5  (1)  (b)  of  Council  Regulation  2494/95.  The 
HICPs provide  the best  statistical  basis  for  international  comparisons  of  consumer  price 
inflation  and  will  be  used  in particular  by  the  European  Commission  and  the  European 
Monetary Institute for the assessment of inflation  convergence under Article  109 (j) of the 
Treaty  establishing  the European  Community.  They  will  subsequently  form  the  basis  of 
the Monetary Union Index of Consumer Prices (MUICP) to be used by, among others, the 
future  European  Central  Bank  for  the  monitoring  of  inflation  in  the  Economic  and 
Monetary Union. The requirement to produce HICPs in no way puts in question the right 
of Member States to publish their national, non-harmonised,  inflation  indices, which they 
may wish to use for national policy purposes. 

2.  Under  Council  Regulation  2494/95,  the  Commission  has  so  far  adopted  three  detailed 
regulations  establishing  the specific  implementing  measures governing  the production  of 
the  HICP.  The  first,  Commission  Regulation  (EC)  1749/96  on  initial  implementing 
measures,  covers  six  technical  areas:  initial  coverage,  newly  significant  goods  and 
services, elementary aggregates, and minimum standards for quality adjustment,  sampling 
and  prices.  The  second,  Commission  Regulation  (EC) No  2214/96, relates  to  the  HICP 
and  its  sub-indices  that  are  transmitted  to  and  disseminated  by  Eurostat.  The  third, 
Commission  Regulation  (EC) No 2454/97, defines  minimum  standards  for  the quality  of 
the weights used to construct the HICP. 

3.  Article  3 of  Council  Regulation  (EC) No  2494/95  requires that the HICP  shall  be  based 
on the prices of goods and services available for purchase on the economic territory of the 
Member  State  for  the  purposes  of  directly  satisfying  consumer  needs.  However  a 
harmonized  definition  of  the  geographic  and  population  coverage  of  the  HICP  is  still 
needed and the draft  regulation seeks to provide this. It specifies that the coverage, for the 
calculation  of  HICP  weights,  should  include  all  household  final  monetary  consumption 
expenditure  which  takes  place  on  the  economic  territory  of  that  Member  State.  In 
particular  the  coverage  should  include  expenditure  by  foreign  visitors  (the  "domestic 
concept")  and  individuals  living  in institutions,  and  exclude the  expenditure  of  residents 
whilst in a foreign  country. All private households should also be included  irrespective of 
the  area  in  which  they  live  or  their  position  in  the  income  distribution.  Expenditure 
incurred for business purposes should be excluded. 

4.  A  harmonized  definition  of  the  geographic  and  population  coverage  of  the  HICP  is 
required  for  the  purpose  of  achieving  comparability  and  also  to  avoid  gaps  or  double 
counting  when aggregating the HICPs of Member  States to calculate the European  index 
of  consumer  prices  (EICP) and the Monetary  Union  index  of consumer  prices  (MUICP) 
which will be main indicator for monitoring the success of the price stability policy of the 
future  European Central Bank (ECB). 

ZC 

5.  The  reasons  for  requiring  the  domestic  concept  to  be used  are  as follows.  The  purpose  of 
the HICP is to  provide the measure for  the price stability criterion  and to  serve as the basis 
for  the  future  MUICP.  The  objective  is  to  measure  the  price  changes  within  each  of  the 
territories  of the  individual Member  States rather  than  the  price  changes  affecting  selected 
households,  such  as  resident  households.  The  price  changes  which  need  to  be  measured 
within the territory  of a Member  State  include those  affecting  foreign  visitors  and  exclude 
those  affecting  residents  whilst  in  a  foreign  country.  Therefore,  for  the  purpose  of 
measuring  convergence,  the  domestic  concept  should  be  used.  Additionally,  for  the 
purpose  of stage III  of EMU, the European  Central Bank  (ECB)  will have to focus  on the 
MUICP.  The  objective  of the ECB  is to  maintain  price  stability  in the Euro  area,  and  the 
MUICP  will  be  the  main  indicator  for  monitoring  the  success  of  the  stability  policy. 
Therefore  it  is necessary  to  have  a  coinciding  definition  of  the  Euro  area  and  the  area  to 
which the MUICP  relates. This property is fulfilled  by the domestic  concept. 

6.  The  expenditure  of  people  living  in  institutional  households,  for  example  in  retirement 
homes,  should  be  included  for  the  following  reason.  The  coverage  of  the  HICP  is  defined 
as those  goods  and  services  which  are  included  in  household  final  monetary  consumption 
expenditure.  The  household  sector  includes people  living  in institutions  and  therefore  their 
expenditure  should  be included  in the weights of the HICP.  As a result  of the  demographic 
changes in the EU the expenditure  of people living in institutional  households,  especially in 
retirement  homes,  is  of  increasing  importance  and  should  therefore  not  be  neglected  in a 
measure of consumer price  inflation. 

7.  The  draft  regulation  only  requires  extensions  to  the  coverage  where  non-comparability 
would  exist  if the extension  did  not  occur.  It  defines  the  complete  set  of households  which 
the  HICP  should  cover.  In  effect  this  is  all  households:  rich  and  poor;  rural  and  urban, 
resident  or non-resident;  private and institutional households. However  the draft  regulation 
allows a portion  of these households  to  be excluded  from  a sub-index  if the expenditure  of 
that  portion  on  items  in  that  particular  sub-index  is  not  significant.  In  this  context  "not 
significant"  is  defined  as  less  than  one  part  per  thousand  of the  total  expenditure  covered 
by  the  HICP.  The  portion  of  households  which  may  be  excluded  can  be  made  up  of  any 
type  of  households,  for  example  institutional  households  and  foreign  visitors  together,  or 
foreign  visitors alone. 

8  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. 
4%  refers  to  the  geographic  and  population  coverage  of  the  HICP.  The  remaining  6% 
refers  to  goods  and  services  to  be  added  in  December  1998  and  December  1999. 
Consultation  is  proceeding  in  parallel  on  a  draft  regulation  defining  a  stepwise  procedure 
on how and when to include the additional goods and services. 

9.  The  HICP  Working  Party1  and  its  Task  Forces  have  spent  many  hours  in  numerous 
meetings  over  two  years  discussing  the  geographic  and  population  coverage  of  the HICP. 
The  proposal  has  obtained  the  agreement  of  almost  all  members  of  the  HICP  Working 
Party  including  the  main  users,  DG  II  and  the  EMI2.  They  emphasised  that  a  harmonized 
definition  of  the  geographic  and  population  coverage  of  the  HICP  was  required  for  the 
purpose  of  achieving  comparability  and  essential  for  assuring  that  the  there  would  be  no 

1 Group of experts 
2  However,  the EMI  has not been formally  consulted 

ZP[ 

gaps or  double  counting  in the  coverage  of the Monetary  Union  index  of  consumer  prices 
(MUICP)  which  needs  to  be  calculated  from  January  1999  as  the  main  indicator  for 
monitoring the price stability policy of the ECB. 

Z  % 

Proposai  for 

COUNCIL  REGULATION  (EC) No  [xx/98] 
of  [date] 
amending  Regulation  (EC) No  1749/96 
concerning  the geographic  and  population  coverage 
of the Harmonized  Index  of Consumer  Prices 

(Text with EEA relevance) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, 

Having  regard  to  Council  Regulation  (EC)  No  2494/95,  of  23  October  1995  concerning 
harmonized indices of consumer prices1, and in particular Articles 4 and 5(3) thereof, 

Having regard to the proposal from the Commission, 

After consulting the European Monetary Institute, 

Whereas, by virtue of Article 5 (1) (b) of Regulation (EC) No 2494/95, each Member State is 
required to produce a Harmonized Index of Consumer Prices (HICP) starting with the index 
for January  1997; the requirement to produce HICPs in no way puts in question the right of 
Member States to publish their national, non-harmonised, inflation  indices, which they may 
wish to use for national policy purposes; 

Whereas Commission Regulation (EC) No 1749/962 set down the initial coverage for HICPs 
that  was restricted  to those goods and  services  covered  by  all  or most national  Consumer 
Prices Indices (CPIs); 

Whereas  Council  Regulation  (EC) No  [xx/98] amending  Commission  Regulation  (EC) No 
1749/963 defined  the coverage of the HICP as those goods and services which are included 
in household final monetary consumption expenditure; 

Whereas Article 3 of Regulation (EC) No 2494/95 requires that the HICP should 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; whereas the weights of 
the HICP require a harmonized definition of their geographic and population coverage; 

Whereas the compilation of the Monetary Union index of consumer prices (MUICP) and the 
European index of consumer prices (EICP) requires a harmonized geographic concept for the 
HICPs; 

OJ No L 257 of 27.10.1995, p. 1 
OJL229,  10.9.1996, p.3. 
OJ L xxx, [date], p.x. 

Whereas  the  Statistical  Programme  Committee  (SPC)  has  not  delivered  an  opinion  within  the 
time limit laid down by the chairman; whereas in this case  following  the procedure  laid down in 
Article  14  paragraph  2  of  Regulation  (EC)  No  2494/95  the  Commission  shall,  without  delay, 
submit to the Council a proposal relating to the measures to be taken; 

HAS ADOPTED THIS REGULATION: 

Article 1 

Sub-paragraph (a2) of Article 2 of Regulation (EC) No  1749/96 is replaced by the following: 

"  'Household final monetary consumption expenditure' is defined  as that part of final  consumption 
expenditure4 which is incurred: 

- by households5 irrespective of nationality or residence status;  and 
- in monetary transactions6; and 
- on the economic territory7 of the Member State; and 
-  on  goods  and  services  that  are  used  for  the  direct  satisfaction  of  individual  needs  or 

wants; and 

- in one or both of the time periods being compared. 

Household  final  monetary  consumption  expenditure  is  specified  in  Annex  lb  of  the  present 
Regulation  and  follows  the  definitions  laid  down  in  the  European  System  of  Accounts  (ESA) 
19958." 

Article 2 

In Article 3 of Regulation (EC) No  1749/96 the following  third paragraph is added: 

"3.  HICPs  compiled  using  sub-index9  weights  which  reflect  final  monetary  consumption 
expenditure  of  a  sub-set  of  households10,  rather  than  of  all  households,  shall  be  deemed 
comparable, where this difference  in practice accounts for less than one part in a thousand of the 
total  expenditure  covered  by  the  HICP.  Any  amendments  of  the  weights  necessary  to  secure 
comparability as defined  in this paragraph shall be implemented by December  1998 at the latest." 

Article 3 

In Annex  lb of Regulation (EC) No  1749/96 paragraphs  1  and 2 are replaced by the following: 

"1.  The  household  sector  consists  of  households  which  include  all  individuals  or  groups  of 
individuals (as defined  in ESA 2.76.a and 2.76.b)  irrespective of,  in particular, the type of area in 
which they live, their position  in the income distribution and their nationality  or residence status. 

4 
- 
6 
7 
8 
9 
10 

Annex  lb  No 4 to 27 
Annex  lb  No 1 
Annex  lb No 3 
Annex  lb  No 2 
Council  Regulation  (EC)  No 2223/96  of 25.6.1996, OJ L 310,  13.11.1996 
Article  2 of Commission  Regulation  (EC)  No 2214/96 of 20.11.1996,  OJ L 296, 21.11.1996,  p. 8. 
Annex  lb  No 1 

So 

Paec2 

It  includes  individuals  living  in institutional  households  (as defined  in ESA 2.76b).  It  does not 
include businesses. 

2.  The  economic  territory  is as  defined  in ESA  2.05  except  that  the  extraterritorial  enclaves 
situated within the boundaries of the country are included  and the territorial enclaves situated in 
the rest of the world are excluded." 

Article 4 

This Regulation shall enter into force on the twentieth day following  that of its publication in the 
Official Journal of the European Communities. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the Council 

3^ 

-Page* 

FINANCIAL STATEMENT 

1. 

Title of operation 

Council  Regulation  (EC)  amending  Regulation  (EC)  No  1749/96  concerning 
geographic and population coverage of the Harmonized  Index of Consumer Prices. 

the 

2. 

Budget heading  involved 

Article B5-604. 

3. 

Legal  basis 

Council Regulation  (EC) No 2494/95. 

4.  Description  of operation 

4.1  General  objective 

The  aim  of the  Council  Regulation  is to  expedite  the  programme  of work  leading 
to  Harmonized  Indices  of  Consumer  Prices  (HICPs)  in  line with  the  convergence 
criteria  requirements  of the  Treaty  establishing  the European  Community.  Council 
Regulation  (EC)  No  2494/95  provides  the  framework  for  detailed  Commission 
Regulations  requiring  Member  States  to  produce  HICPs  following  concepts 
methods  and  practices  which  have  been  proposed  by  the  Working  Party1  on  CPI 
Harmonization  and  approved  by  the  Statistical  Programme  Committee  following 
the Regulatory Committee procedure. 

Commission  Regulation  (EC) No  1749/96 of 9 September  1996 gives measures on 
initial  coverage,  treatment  of  newly  significant  goods  and  services,  minimum 
standards  for  procedures  of  quality  adjustment,  minimum  standards  for  prices, 
price indices for  elementary  aggregates, and minimum standards for  sampling. 

Commission  Regulation  (EC)  No  2214/96  of 20 November  1996  defines  the  sub-
indices  of  the  HICPs  which  are  produced,  transmitted  and  disseminated  each 
month  starting with the index for January  1997. 

Commission  Regulation  (EC)  No  2454/97  of  10 December  1997  defines  minimum 
standards  for  the quality of the weights used  in the computation  of the HICP. 

The  Commission  Decision  of  9  September  1996  [ref.  No  C(96)2452]  provides  for 
the funding  of part  of the additional  costs to Member  States. 

Group of experts 

3  cf 

This draft  Council Regulation  amends Regulation  (EC) No  1749/96 with respect  to 
the  geographic  and  population  coverage  of  the  Harmonized  Index  of  Consumer 
Prices.  It  proposes  a coinciding  definition  of the Euro  area  and  the  area  to  which 
the Monetary Union index of consumer prices (MUICP) relates, which will be used 
by, among others, the future  European  Central Bank for  the monitoring of  inflation 
in the Economic and Monetary Union from  January  1999. 

In  parallel  consultation  is  proceeding  on  a  draft  Council  Regulation  amending 
Regulation (EC) No  1749/96 with respect to coverage of goods and services of the 
Harmonized Index of Consumer Prices. 

4.2  Period covered and arrangements  for renewal 

The  Council  Regulation  requires  an  implementation  in  stages  of  progressive 
harmonization.  The  first,  in  February  1996,  involved  minimal  resources  and  was 
based  almost  entirely  on  existing  Consumer  Price  Indices  (CPIs).  The  second,  in 
January  1997,  involved  substantial  resources.  The  third  and  fourth,  in  December 
1998 and  1999, will also involve substantial  resources. 

5.  Classification  of expenditure or revenue 

DNO  : CD. 

6. 

Type of expenditure or revenue 

Subvention  cofinancing (66.6%) with national  administrations; 
Administrative expenditure - see paragraph  10. 

7. 

Financial  impact 

7.1  Method  of calculating the total cost of the action 

The  draft  regulation  is  necessary  to  achieve  comparable  measures  of  inflation, 
and  essential  for  a  coinciding  definition  of  the  Euro  area  and  the  area  to  which 
the  Monetary  Union  index  of  consumer  prices  (MUICP)  relates,  which  will  be 
used  by,  among  others,  the  future  European  Central  Bank  for  the  monitoring  of 
inflation  in  the  Economic  and  Monetary  Union  from  January  1999.  However,  it 
will involve additional  resources  in Member  States, and  in accordance with  Article 
13 of Council Regulation  (EC) No  2494/95 the Commission (Eurostat) is expected 
to  bear  two-thirds  of  these  additional  costs  until  the  end  of  the  second  year  of 
implementation  of the measures.  It  is estimated  that  costs will not  exceed  900.000 
Ecu  for  the  implementation  of  this  draft  Council  Regulation.  The  costs  to  the 
Commission  of  this  regulation  will  therefore  not  exceed  600.000  Ecu.  Some 
Member  States  are  better  equipped  to  handle  the  necessary  system  changes  than 
others.  In  accordance  with  Article  13  Member  States  are  not  obliged  to 
implement  the  draft  regulation  unless  the  Commission  (Eurostat)  will  bear  two-
thirds of  the additional  costs 

-3.5 

7.2  Breakdown  of the cost  of the  action 

Member  States will produce  a breakdown  of the costs of their action as part  of the 
process of agreeing contracts. 

8. 

Fraud  prevention  measures 

Contractual  arrangements with Member  States will be  set  in place to  ensure  appropriate 
actions are undertaken  and properly accounted  for. 

9. 

Elements of cost-effectiveness  analysis 

9.1  Specific  and quantified  objectives;  target  population 

Specific  objectives: 
Improved  and comparable indices of consumer prices. 

Target population: 
Users  of  price  indices  in  Member  States  will  benefit  from  improved  measures  as 
will  decisions  by  the  EMI  and  the  Commission  as  regards  both  Monetary  Union 
and other macro-economic  developments. 

9.2  Grounds for the operation 

The  Council  Regulation  should  lead  to  improved  reliability  and  international 
comparability  of  the  CPIs  of  Member  States.  It  should  lead  too  to  a  sharing  of 
expertise  and  technological  applications  on  CPI  compilation  between  Member 
States. 

Main factor  of uncertainty: 
The  Council  Regulation  provides  only  a  framework  within  which  many  technical 
details must be resolved  in collaboration  with Member States. 

9.3  Monitoring  and evaluation  of the operation 

The implementing  measures provide for  extensive  monitoring  and the  development 
of  appropriate  performance  indicators  by  means  of  questionnaires  and  Eurostat 
audit  missions (see below for costs). 

The  Council  Regulation  provides  for  a  review  by  November  1997  and  again  by 
November  1999. The  1997 review has already been sent to  the  Secretariat  General 
of the Commission  for submission to the Council of Ministers. 

ZH 

10.  Administrative  expenditure (Section  III, Part A of the  budget) 

Actual  mobilisation  of  the  necessary  administrative  resources  will  depend  on  the 
Commission's  annual  decision  on  the  allocation  of  resources,  taking  into  account  the 
number of staff and additional amounts authorised  by the budgetary authority. 

10.1  Effect  on the number of posts 

Type of post 

Staff to be assigned to 
managing the operation 

Permanent 
posts 

Temporary 
posts 

Officials or 
temporary 
staff 

A 
B 
C 
Other resources 
(experts) 
A-7000 
Total 

VA 
2 
1 
2 

VA 

Duration 

3 years 

Source 

Additional 
resources 

Existing 
resources in 
the DG or 
department 
concerned 
VA 
2 
1 
1 

VA 

The annual cost of existing resources is: 

Officials  (titles Al,  A2, A4, A5) 
Experts (A-1178) 

= 682.500 Ecu x 3 years 
=  98.000 Ecu x 3 years 

Total 

=  2.047.500 
=  294.000 
=  2.341.500 

10.2  Overall financial  impact of additional  human  resources 

none 

10.3  Increase  in other administrative  expenditure as a result of the operation 

Ecu 

Budget  heading 
A - 7031 Working groups of the 
Statistical Programme  Committee 

Amounts 
96.000 

Method  of calculation 
4 meetings at 8 K Ecu covering 
delegates expenses (x 3 years) 

The costs of the  audit  missions to ten Member  States  per  year  - three  days at  120 Ecu 
per day + fares  - is estimated  at 31.800 Ecu: 

A-701 

31.800 Ecu x 3 years 

=  95.400 

STATEMENT OF IMPACT OF THE PROPOSAL ON 
INDUSTRY AND IN PARTICULAR ON SMALL AND 
MEDIUM ENTERPRISES 

Title of proposal: 

Proposal  for  Council  Regulation  (EC)  amending Regulation  (EC) No  1749/96  concerning  the 
geographic and population  coverage of the Harmonized  Index of Consumer Prices 

The proposal: 

1.  Taking  account  of  the  principle  of  subsidiarity  why  is  Community  legislation 

necessary  in this area and what are the main aims? 

The aim is to  expedite  a programme  of work  leading to Harmonized  Indices  of Consumer 
Prices  (HICPs)  in  line  with  the  convergence  criteria  requirements  of  the  Treaty 
establishing  the  European  Community.  HICPs are  designed  for  international  comparisons 
of consumer  price  inflation.  They will  be used  in particular  by the  European  Commission 
and  the  European  Monetary  Institute  for  the  assessment  of  inflation  convergence  under 
Article  109  (j)  of  the  Treaty  establishing  the  European  Community.  HICPs  will 
subsequently form  the basis of the Monetary Union Index of Consumer Prices (MUICP) to 
be  used  by,  among  others,  the  future  European  Central  Bank  for  the  monitoring  of 
inflation  in the Economic and Monetary Union. 

Council  Regulation  (EC)  No  2494/95  provides  the  framework  for  detailed  Commission 
Regulations  requiring Member  States to  produce HICPs  following  concepts  methods  and 
practices  which  have  been  proposed  by  the  Working  Party1  on  CPI  Harmonization  and 
approved  by  the  Statistical  Programme  Committee  following  the  Regulatory  Committee 
procedure.  In  accordance  with  Article  5  (3)  of  the  Council  Regulation  implementing 
measures  are  necessary  for  ensuring  comparability  of  HICPs  and  for  maintaining  and 
improving  their  reliability.  So  far  the  Commission  has  adopted  three  detailed  regulations 
establishing  specific  statistical  standards  governing  the production  of the HICP.  The  first, 
Commission  Regulation  (EC)  1749/96  on  initial  implementing  measures,  covers  six 
technical  areas:  initial  coverage,  newly  significant  goods  and  services,  elementary 
aggregates,  and  minimum  standards  for  quality  adjustment,  sampling  and  prices.  The 
second,  Commission Regulation  (EC) No 2214/96, relates to the HICP and  its  sub-indices 
that  will  be  transmitted  to  and  disseminated  by  Eurostat.  The  third,  Commission 
Regulation  (EC)  No  2454/97,  defines  minimum  standards  for  the  quality  of  the  weights 
used to construct  the HICP. 

On  7  March  1997  Eurostat  published  the  first  set  of  Harmonized  Indices  of  Consumer 
Prices (HICPs) as required by Article 5 (1) (b) of Council Regulation  2494/95. The HICPs 
provide  the best  statistical  basis for  international  comparisons  of  consumer  price  inflation 
and  very  considerable  progress  has  been  made  in  harmonizing  methodologies.  However, 
.  more work remains to be done to achieve further  harmonization  of consumer price indices. 

Group of experts 

3& 

Article 3 of Council Regulation (EC) No 2494/95  requires that the HICP shall be based on 
the prices  of goods  and  services  available  for  purchase  on the  economic  territory  of the 
Member  State  for  the  purposes  of  directly  satisfying  consumer  needs.  However,  a 
harmonized  définition  of  the  geographic  and  population  coverage  of  the  HICP  is  still 
needed and the draft regulation seeks to provide this. It specifies that the coverage, for the 
calculation  of  HICP  weights,  should  include  all  household  final  monetary  consumption 
expenditure  which  takes  place  on  the  economic  territory  of  that  Member  State.  In 
particular  the  coverage  should  include  expenditure  by  foreign  visitors  (the  "domestic 
concept")  and  individuals  living  in  institutions.  All  private  households  should  also  be 
included  irrespective  of  the  area  in  which  they  live  or  their  position  in  the  income 
distribution. Expenditure incurred for business purposes should be excluded. 

A  harmonized  definition  of  the  geographic  and  population  coverage  of  the  HICP  is 
required  for  the  purpose  of  achieving  comparability  and  also  to  avoid  gaps  or  double 
counting in the coverage of the Monetary  Union  index  of consumer prices (MUICP) and 
the European index of consumer prices (EICP). 

The reasons for requiring the domestic concept to be used are as follows.  The purpose of 
the HICP is to provide the measure for the price stability criterion and to serve as the basis 
for the future  MUICP.  The  objective  is to  measure  the  price changes within  each of the 
territories of the individual Member States rather than the price changes affecting  selected 
households,  such as resident  households.  The  price  changes  which  need  to  be measured 
within the territory of a Member  State include those  affecting  foreign  visitors.  Therefore, 
for  the  purpose  of  measuring  convergence,  the  domestic  concept  should  be  used. 
Additionally, for the purpose of stage III of EMU, the European Central Bank (ECB) will 
have to focus on the MUICP. The objective of the ECB is to maintain price stability in the 
Euro  area.  Therefore  it is necessary  to  have  a coinciding  definition  of the Euro  area and 
the area to which the MUICP relates. This property is fulfilled by the domestic concept. 

The  expenditure  of  people  living  in  institutional  households  should  be  included  for  the 
following reason. The coverage of the HICP is defined  as those goods and services which 
are included in household  final  monetary consumption  expenditure.  The household  sector 
includes people living in institutions,  and therefore their expenditure should be included in 
the weights of the HICP. 

The impact on business: 

2.  Who will be affected  by the  proposal? 

•  which sector of business 

Consumer  price  indices  are compiled  using  prices  and weights.  For  most  Member  States the 
draft  regulation  will  involve  extending  the  coverage  of  the  information  used  to  calculate  the 
HICP  weights.  For  example  they  will  have  to  include  expenditure  by  foreign  visitors  or 
individuals  living  in  institutions  such  as  retirement  homes.  According  to  the  principle  of 
subsidiarity it is up to the National  Statistical  Institutes to decide how and where to collect that 
information.  To a large extent the data could be obtained from already existing sources such as 
tourism  statistics.  Furthermore,  information  on  people  living  in institutional  households  could 
be collected from non-profit  organisations serving households or the government sector. 

•  which  size  of  business?  (what  is  the  concentration  of  small  and  medium  sized 

firms?) 

^ 

The size of the business is only relevant  to  the  extent  that  the weights  should  correctly  reflect 
the  expenditure  of  all  households,  including  people  living  in  institutional  households  such  as 
retirement  homes.  According  to  the  principle  of  subsidiarity,  the  data  sources  are  selected  by 
the National  Statistical Institutes. 

• 

are  there any particular  geographic  areas  of  the EU  where  these  businesses are 
found? 

The geographic  area is only relevant  to the extent  that  the weights  should  correctly  reflect  the 
household monetary consumption  expenditure on the whole economic territory of the Member 
States. All Member States of the European Union, Norway and Iceland are concerned. 

3.  What will businesses  have to do to comply with the proposal? 

National  Statistical  Institutes  collect  the  necessary  information  about  the  expenditure  of  all 
households  on  the  economic  territory  from  already  existing  data  sources  such  as  for  example 
household  budget  surveys, tourism  statistics,  and  national  accounts.  In  some cases it  might be 
necessary  to  extend  the existing  surveys or  to  collect  the  information  directly  from  non-profit 
organisations  serving  households,  government  agencies,  or  retirement  homes.  In  general,  the 
participation in such surveys is on a voluntary basis. 

4.  What economic effect  is the proposal likely to have? 

• 
• 
• 

on employment? 
on investment and the creation of new businesses? 
on the competitive position  of businesses? 

An  indirect  effect,  in  so  far  as the  HICPs  allow  international  comparisons  of  consumer  price 
inflation,  and will provide the statistical  basis for the assessment  of inflation  convergence under 
Article  109 (j)  of the Treaty  establishing the European  Community.  In  Stage  III  of EMU,  the 
HICPs will be used to compile the Monetary Union Index of consumer prices (MUICP), which 
will  be  the  indicator  for  monetary  policy  of  the  future  European  Central  Bank.  A  single  and 
stable currency is an important  step to advance European  integration  and to promote  economic 
progress with important  impact on employment, investment  and  competition. 

5.  Does  the  proposal  take  account  of  the  specific  situation  of  small  and  medium-sized 

firms  (reduced  or different  requirements  etc.)? 

According  to  the  principle  of  subsidiarity,  the  data  sources  are  defined  by  the  National 
Statistical  Institutes.  They  already  collect  similar  information  on  weights  for  calculating  their 
national  consumer  price  indices  (CPIs).  The  HICPs  are  mainly  based  on  that  information. 
However,  the  proposed  regulation  might  involve new  data  collection  in some Member  States. 
To  a  large  extent  the  data  could  be  obtained  from  already  existing  sources  such  as  tourism 
statistics.  Furthermore,  information  on  people  living  in  institutional  households  could  be 
collected  from  non-profit  organisations  serving  households  or  the  government.  In  general, 
participation  in such surveys is on a voluntary basis. 

3^ 

Consultation: 

6.  List  the  organisations  which  have  been  consulted  about  the  proposal  and  outline 

their main views. 

The  European  Advisory  Committee  on  Statistical  Information  in  the  Economic  and  Social 
Spheres  (CELES)2,  DG  II  of the  Commission,  the  European  Monetary  Institute,  and  Central 
banks  of  Member  States  are  participating  actively  in  the  meetings  of  the  Working  Party3  on 
CPI Harmonization  and  the Task Forces.  They  emphasised  that  a harmonized  definition  of the 
geographic  and  population  coverage  of  the  HICP  was  required  for  the  purpose  of  achieving 
comparability  and  essential  for  assuring  that the there  would  be no gaps  or  double  counting in 
the  coverage  of  the  Monetary  Union  index  of  consumer  prices  (MUICP)  which  needs  to  be 
calculated  from  January  1999. They are therefore  in favour  of the proposed  regulation. 

established  by  Council  Decision  91/116/EEC;  the  Committee  is  made  up  of  representatives  from  the 
scientific,  economic and social  fields covering  producers and  users of statistical  information 
Group of experts 

3<5> 

COMPLEMENTARY STATEMENT CONCERNING EFTA 
COUNTRIES 

Title :  Proposal  for Council  Regulation  (EC) amending  Regulation  (EC) No  1749/96 
concerning the geographic  and  population  coverage  of the Harmonized  Index 
of Consumer Prices 

Impact  on EFTA  countries 

EFTA countries have been  involved  in discussions  of the  Statistical  Programme  Committee 
and the  Working  Party  on  the  Harmonization  of  Consumer  Price  Indices.  They  are  fully 
aware  of  the  proposals  for  a  Regulation  and  their  views  have  been  taken  into  account  in 
preparing  the  draft.  They  intend  to  compile  Harmonized  Indices  of  Consumer  Prices 
(HICPs) in accordance with this Regulation. 

M ^j 

ISSN 0254-1475 

COM(98) 323 final 

DOCUMENTS 

EN 

10  09  06  17 

Catalogue number  :  CB-C0-98-331-EN-C 

ISBN  92-78-36385-5 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg 

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