Report from the Commission to the Council on harmonization of consumer price indices in the European Union
Date: 2000-11-21
Institutions: European Commission
Subjects: consumer price, economic convergence, harmonisation of prices, price index, prices policy

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 21.11.2000
COM(2000) 742 final

REPORT FROM THE COMMISSION
TO THE COUNCIL

ON HARMONIZATION OF CONSUMER PRICE INDICES
IN THE EUROPEAN UNION

TABLE OF CONTENTS

Table of contents.................................................................................................................... 2

List of tables .......................................................................................................................... 5

Abbreviations used in the text ................................................................................................ 6

1.

2.

3.

3.1.

3.2.

3.3.

4.

5.

5.1.

5.2.

5.3.

5.4.

5.5.

5.6.

EXECUTIVE SUMMARY.......................................................................................... 9

INTRODUCTION..................................................................................................... 11

Basic concepts and definitions ................................................................................... 12

Aim and Scope of the HICP ................................................................................... 12

HICP Coverage, weights and prices........................................................................ 13

Computation of the HICP ....................................................................................... 14

HICPS AS DISSEMINATED BY EUROSTAT ........................................................ 14

IMPROVEMENTS IN THE DESIGN OF THE INDEX............................................ 16

Weights.................................................................................................................. 16

Coverage of goods and services.............................................................................. 17

Geographic and population coverage ...................................................................... 21

Classification of goods and services ....................................................................... 21

Tariff prices............................................................................................................ 22

Insurance................................................................................................................ 23

5.6.1. Weights for insurance............................................................................................. 24

5.6.2.

Prices for insurance ................................................................................................ 25

5.7.

5.8.

Health, education and social protection services ..................................................... 25

Guidelines on implementing measures of the HICP ................................................ 26

5.8.1. Guidelines regarding revisions to HICPs ................................................................ 26

5.8.2. Guidelines on the treatment of price reductions in the HICP ................................... 27

5.8.3. Guidelines on the treatment of rejected price observations...................................... 27

5.8.4. Guidelines for the treatment of data processing equipment and notably personal

computers in the HICPs.......................................................................................... 28

6.

QUALITY IN THE INDEX ...................................................................................... 28

6.1.

6.2.

Relevance............................................................................................................... 28

Reliability............................................................................................................... 30

2

6.2.1. Representativity...................................................................................................... 30

6.2.2.

Precision ................................................................................................................ 31

6.3.

Comparability......................................................................................................... 32

6.3.1. Comparability of use of different formulae ............................................................. 32

6.3.2. Comparability between Member States................................................................... 32

6.4.

The operation of the HICP standards ...................................................................... 33

6.4.1. Conceptual problems for technically ‘difficult’ item groups.................................... 36

6.4.2. Newly significant goods and services ..................................................................... 36

6.4.3. Quality of weights .................................................................................................. 43

6.4.4. Household Final Monetary Consumption Expenditure (HFMCE) ........................... 43

6.4.5. Macro index formula (common reference period) ................................................... 49

6.4.6.

Elementary aggregates............................................................................................ 52

6.4.7. Minimum standards for sampling ........................................................................... 55

6.4.8.

The level at which macro aggregation changes into elementary aggregation ........... 62

6.4.9. Minimum standards for prices and quality adjustment ............................................ 62

6.4.10. Quality adjustment database ................................................................................... 64

6.4.11.

Implicit Quality Indices (IQIs)................................................................................ 64

6.4.12. Handling of missing observations ........................................................................... 65

6.4.13. Seasonal items........................................................................................................ 65

6.4.14. Price measurement and processing ......................................................................... 65

a)

b)

c)

d)

Tariff prices............................................................................................................ 65

Price reductions...................................................................................................... 66

Timing of entering purchaser prices into the HICP ................................................. 66

Revisions policy ..................................................................................................... 67

6.5.

Coherence .............................................................................................................. 67

6.5.1. Classification.......................................................................................................... 67

6.5.2. Coherent definitions with the National Accounts (NA) ........................................... 67

6.6.

6.7.

Timeliness and punctuality ..................................................................................... 68

Accessibility and clarity ......................................................................................... 69

7.

QUALITY ASSURANCE IN THE HICP.................................................................. 71

7.1.

Compliance Monitoring.......................................................................................... 71

3

7.2.

Advisory body........................................................................................................ 72

8.

ENLARGEMENT OF THE EU................................................................................. 73

8.1.

8.2.

8.3.

Introduction............................................................................................................ 73

Implementation strategy ......................................................................................... 73

Phare project .......................................................................................................... 74

8.3.1.

Pilot project on price statistics ................................................................................ 74

8.3.2.

Training programme............................................................................................... 75

9.

OPERATION OF THE REGULATORY COMMITTEE ........................................... 75

10.

REACTIONS FROM THE USERS AND THE MEDIA............................................ 77

10.1.

Opinion of the European Central Bank ................................................................... 77

10.2.

Opinion of the Economic and Financial Affairs Directorate-General of the
European Commission............................................................................................ 78

10.3.

HICP in the press.................................................................................................... 79

11.

COSTS ...................................................................................................................... 80

12. OUTLOOK ............................................................................................................... 80

12.1.

Future work with Member States............................................................................ 80

ANNEX I............................................................................................................................. 84

ANNEX II ........................................................................................................................... 85

ANNEX III .......................................................................................................................... 97

4

TABLES

Table 1 Sub-indices fully implemented in December 1999 .................................................. 19

Table 2 Main identified potential sources of differences...................................................... 35

Table 3 Newly significant goods and services versus replacements ..................................... 39

Table 4 Newly significant goods and services proposed by Member States ......................... 41

Table 5 Newly significant goods and services suggested by Eurostat .................................. 42

Table 6 Changes in coverage made with January 2000 index............................................... 46

Table 7 Annual rates of change (difference in % points between the HICP including and

excluding extended coverage)................................................................................. 48

Table 8 Weight reference periods........................................................................................ 51

Table 9 Formulae applied for the computation of the Elementary Aggregates ..................... 53

Table 10Number of elementary aggregates on average per month for the 12 most recent

subsequent month................................................................................................... 57

Table 11Price observations per elementary aggregate on average per month ........................ 59

Table 12Status quo and future work ..................................................................................... 82

5

ABBREVIATIONS USED IN THE TEXT

A

B
CC
CEIES

CET
CMQ
COICOP
COLI
CPIs

D
DK
EA
EC
ECB
EEA
EEAICP

EICP
EL
EMU
ES
ESA
ESCB

EU
F
FIN
FISIM
GM
HBS
HFCE
HFMCE
HICP
I
IMF
IQI

IRL
JO

Austria

Belgium
Candidate Country
Committee on Statistical Information in the Economic and Social
Spheres
Central European Time
Compliance Monitoring Questionnaire
Classification Of Individual COnsumption by Purpose
Cost of Living Index
Consumer Price Indices

Germany
Denmark
Elementary Aggregates
European Community
European Central Bank
European Economic Area
European Economic Area Index of Consumer Prices

European Index of Consumer Prices
Greece
Economic and Monetary Union
Spain
European System of Accounts
European System of Central Banks

European Union
France
Finland
Financial Intermediation Services Indirectly Measured
Geometric Mean
Household Budget Survey
Household Final Consumption Expenditure
Household Final Monetary Consumption Expenditure
Harmonized Indices of Consumer Prices
Italy
International Monetary Fund
Implicit Quality Indices

Ireland
Official Journal of the European Communities

6

L
MS
MUICP

N
NA
NL
NPISH
NSI
OECD

OOH
P
PC
Phare

PPP
PPS
RAM
S
SDDS

SPC
TF
TQM
TV
UK
UN

UNSD
US
WP

Luxembourg
Member State
Monetary Union Index of Consumer Prices

Norway
National Accounts
Netherlands
Non-Profit Institutions Serving Households
National Statistical Institute
Organisation for Economic Co-operation and Development

Owner-Occupied Houses
Portugal
Personal Computer
Action plan for coordinated aid to Poland and Hungary (subsequently
extended to the remainder of the Central and East European countries)
Purchasing Power Parities
Purchasing Power Standards
Ratio of Arithmetic Mean prices
Sweden
Special Data Dissemination Standards

Statistical Programme Committee
Task Force
Total Quality Management
Television
United Kingdom
United Nations

United Nations Statistics Division
United States of America
Working Party

7

REPORT FROM THE COMMISSION
TO THE COUNCIL

ON HARMONIZATION OF CONSUMER PRICE INDICES
IN THE EUROPEAN UNION

8

1. EXECUTIVE SUMMARY

As required by Council Regulation (EC) No 2494/951, Harmonized Indices of Consumer
Prices (HICPs) have been produced and published on a common reference base 1996=100,
common coverage of consumer goods and services and a common classification since
March 1997.

to

1998

reported

February

(Eurostat)

the Commission

In
the Council
[COM(1998)104 final] (hereinafter referred to as the Report) on the HICPs established and
in particular on their reliability and compliance with the comparability requirements. The
Report noted that these indices had been accepted by both the Commission and the
European Monetary Institute as providing satisfactory measures for the assessment of
convergence. Eurostat and the main users were, however, looking for further improvements
in the quality and comparability of the HICPs for their use in monetary policy and the
monitoring of inflation in the Economic and Monetary Union. The Report specifically
mentioned concerns over the issues of quality adjustment, sampling methods and the
coverage of goods and services. Over the two years since that Report the Commission
(Eurostat) has, with National Statistical Institutes, focused on these issues together with the
presentation of timely and comprehensive indices to the European Central Bank and other
users.

The initial HICPs, although fairly comprehensive in coverage, were for the most part the
common denominator of the national Consumer Price Indices (CPIs). Since then, with
considerable effort and co-operation by Member States, coverage has been extended to
almost all of consumers’ expenditure. In particular the difficult areas of health, education
and social protection services are now largely covered, as are insurance and financial
services. These and the geographic and population coverage are included according to
agreed definitions thus ensuring comparability despite major institutional differences.

Other improvements in comparability have come from agreements on the treatment of
‘tariff’ prices, such as electricity and telephones, and the willingness of Member States to
update weights and to ensure that prices of new goods, such as mobile phones and PCs, are
included. Although the Regulations imposed no requirements on Member States for an
annual comprehensive updating of weights three Member States have moved to annual
updating and others are either considering this or are planning an early updating. As a result
HICPs have rather more up-to-date and relevant weights than was the case with CPIs
before harmonization.

There is as yet no consensus as to whether owner-occupiers face inflation that should be
covered by the HICPs, other than in the prices of repairs and maintenance. The possibility
of constructing an index of the net acquisition expenditure of owner-occupied dwellings
(house prices) has been examined and found to involve considerable practical difficulties
for a number of Member States. Depending on one’s point of view owner-occupiers’ costs
other than monetary expenditure are either not an issue of consumer inflation or they are an
issue but with no practical solution.

1

OJ L 257, 27.10.1995, p. 1.

9

Perhaps not at all unexpectedly, the problem of quality adjustment has proved to be
intractable. Nevertheless, some slow progress has been made, such as the introduction of
implicit quality indices (IQIs) on an experimental basis as a practical monitoring
instrument. Concern that CPIs were biased upwards on account of a failure to allow for
increased following the
quality change, particularly in high-tech goods such as PCs,
‘Boskin Commission’ Report in December 1996 on the US CPI, and the Hoffmann Report
on the German CPI (1998). The Commission (Eurostat) considered the arguments of bias in
some detail.

However, whilst recognising that quality change was a major issue, it concluded that a case
of systematic bias in any CPI could not be supported in the absence of any agreement on
what constituted quality change or on appropriate operational methods for allowing for
such changes. The Boskin argument based on cost-of-living index theory, while interesting,
did not apply to the HICP, which is a Laspeyres-type index aimed at measuring inflation,
and the assumptions underlying the theory were not generally met. The Commission
(Eurostat) is, nevertheless, closely following attempts by the US Bureau of Labour
Statistics to develop quality adjustments for PCs and other consumer goods and services.

It continues to seek agreement with Member States on practical measures to improve
quality adjustments. Comparisons between countries of actual adjustments made have
highlighted sometimes large and unacceptable differences at sub-index level, and Member
States have been made aware of these.

Work with Member States on sampling methods has made rather more progress, although
here too there is a lack of an adequate theoretical framework. While statistical sampling
theory is well developed its application to price indices, where price change must be
measured in a dynamic economy, involves conceptual issues that have not been resolved. It
is also the case that, for reasons of economy, most Member States take purposive rather
than probability samples. The main thrust of regulation will be towards an adequate
representation of currently available goods and services. The potential benefits of improved
price information in the form of ‘scanner data’ from supermarket checkouts are also being
considered by a number of Member States.

Since the start of Stage III of EMU in January 1999 there has been a shift of emphasis from
national HICPs towards the Monetary Union Index of Consumer Prices (MUICP), which is
the centre of interest for the ECB in its assessment of price stability in the euro zone. The
Commission (Eurostat) now publishes the MUICP together with the monthly HICPs and a
comprehensive range of sub-indices to a timetable some 18 days earlier than required by
the framework Council Regulation. The indices are made available through the
Commission’s (Eurostat) NewCronos database and its website together with supporting
explanatory data on methods of construction. Candidate Countries have, with expert help
from the Commission (Eurostat) and Member States, made considerable progress in
constructing consumer price indices following the HICP requirements and these are also
available.

The Commission (Eurostat) believes that the HICPs represent a considerable co-operative
achievement resulting in markedly improved measures of inflation not only for informing
monetary policy for the Monetary Union but also for the Governments of Member States.
Nevertheless, there still remains much to be done to ensure the overall reliability, relevance
and comparability of the indices. The forward programme of work with Member States
therefore seeks to consolidate and explicate (with practical guidelines) existing standards

10

and, where there remains potential for systematic differences such as in quality adjustment,
to develop the necessary new standards. It also seeks to develop operational monitoring
systems sufficient to assure users that all HICPs and the MUICP meet the established
standards and those yet to be agreed.

2. INTRODUCTION

On 23 October 1995, the Council of Ministers adopted a Regulation2 setting the legal basis
for the establishment of a harmonized methodology for compiling consumer price indices
(CPIs) in EU Member States.

HICPs served as a criterion for entering the Economic and Monetary Union (EMU) and are
the basis for compiling the European Index of Consumer Prices (EICP) and the Monetary
Union Index of Consumer Prices (MUICP) which latter provides the official measure of
inflation in the euro-zone. Therefore, in the beginning of the harmonization project the
most important use of the HICPs was in the application of the criterion of convergence for
price stability in the context of the preparations for Stage III of EMU. In line with this, the
harmonisation work during this period focused on measures to remove or reduce significant
long-term effects (non-comparabilities), as those were most likely to distort the assessments
of sustainable price stability. This approach followed the Treaty on European Union which
said that ‘inflation shall be measured by means of a consumer price index on a comparable
basis taking into account differences in national definitions’.

The first of January 1999 was a historic date in the process of European economic
integration. Stage III of Economic and Monetary Union began with 11 countries
participating in the single currency. From that date, there is a single interest rate applied in
the euro-zone, fixed by the European Central Bank (ECB). As required by the Treaty the
maintenance of price stability is the primary objective of the European System of Central
Banks (ESCB). Wim Duisenberg, the President of the ECB, announced in October 19983
that it would be operating a flexible monetary policy strategy, ensuring price stability in the
euro-zone based on a monetary reference value and a mix of other indicators (‘price
stability shall be defined as a year-on-year increase in the Harmonised Index of Consumer
Prices for the euro area of below 2%’)4.

Council Regulation (EC) No 2494/95 concerning Harmonized Indices of Consumer Prices
(HICPs) (hereinafter referred to as the framework Regulation) laid down a stepwise
approach, each step requiring specific implementing measures which were legislated in the
form of Commission Regulations. Regarding the process for implementing HICPs it should
be stressed that
the framework Regulation foresaw a procedure with the Statistical
Programme Committee (SPC) acting as Regulatory Committee. (The SPC comprises the
Directors-General of the National Statistical Institutes.)

Within this framework, rules as well as guidelines or non-obligatory statements of good
practice have been drawn up in collaboration with Member States for the construction of
ten detailed Regulations have been adopted establishing specific
HICPs. To date,
implementing measures governing the production of the HICP.

2

3

4

Council Regulation (EC) No 2494/95 (OJ L 257, 27.10.1995, p. 1).
See text distributed at ECB Press Conference, Frankfurt, 13.10.1998.
Wim Duisenberg at ECB Press Conference, Frankfurt, 13.10.1998.

11

The first Commission Regulation (EC) No 1749/96 on initial implementing measures
covered 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 related to the HICP and its
sub-indices that are transmitted to and disseminated by Eurostat. Commission Regulation
(EC) No 2454/97, defined minimum standards for the quality of the weights used to
construct the HICP.

Furthermore,
1687/98 and 1688/98) extend the HICP coverage by December 1999 and December 2000.

two implementing Council Regulations (Council Regulations (EC) Nos

The fourth Commission Regulation (EC) No 2646/98 laid down minimum standards for the
treatment of tariff prices, and Commission Regulation (EC) No 1617/1999 concerned the
minimum standard for the treatment of insurance.

Commission Regulation (EC) No 1749/1999 updated the classification which was laid
down in Commission Regulation (EC) No 2214/96. The most recent Regulation, Council
Regulation (EC) No 2166/1999,
laid down minimum standards for the treatment of
products in the health, education and social protection sectors in the HICP. At the SPC
meeting in May 2000, the SPC expressed a favourable opinion on two further draft
Regulations (draft Regulation on the treatment of reduced prices in the HICP, and draft
Regulation on the timing of entering purchaser prices into the HICP). The full set of HICP
legal acts is listed in Annex I to this Report.

As already stressed in the first Report, the production of a consumer price index is an
elaborate and sensitive operation. Many of the necessary changes were agreed in lengthy
discussions and required substantial preparation before implementation.

The first Report reported on the state of HICPs as in the end of 1997 after the approval of
the first three implementing Regulations.

This Report, building on the above, focuses on the improvements that have been achieved
in the design of the index since then and elaborates further on quality aspects in the index.
Furthermore, it gives an overview of the work programme forward to 2002.

3. BASIC CONCEPTS AND DEFINITIONS

3.1. Aim and Scope of the HICP

The HICP is produced in each Member State using a harmonized methodology developed
by European price statisticians led by Eurostat. It is the main measure of price stability in
the euro-zone. The HICP is used for the assessment of convergence in the EU, and financial
markets value these indices since they provide comparable measures across EU Member
States.

Following the Maastricht Treaty the aim of the HICP is to measure inflation by means of
the consumer price index on a comparable basis, taking into account differences in national
definitions. However, this did not allow for the fact that there is no operational definition of
‘inflation’. Definitions exist only on a general level, of which the most widely accepted is
probably that ‘inflation is a persistent increase in the general level of prices’. With this
definition in mind and having regard to the opinion and the needs of the main users, it was

12

decided to compute the HICP as a Laspeyres-type price index that is based on the prices of
goods and services available for purchase in the economic territory of the Member State for
the purpose of directly satisfying consumer needs. Based on this concept and by reference
to the European System of Accounts (ESA 95) the coverage of the HICP was taken as
‘household final monetary consumption expenditure’. This defines the goods and services,
the population and the geographic territory to be covered as well as the prices and the
weights to be used.

The HICP may thus be described as a Laspeyres-type ‘consumer inflation’ or ‘pure price’
index measuring average price change on the basis of the changed expenditure of
maintaining the consumption pattern of households and the composition of the consumer
population in the base or reference period. ‘Pure’ means that, strictly speaking, it is only the
changes in prices that are reflected in the measure between the current and the base or
reference period. The HICP is not a cost of living index. That is, it is not a measure of the
change in the minimum cost for achieving the same ‘standard of living’ (i.e. constant
utility) from two different consumption patterns realised in the two periods compared and
where factors other than pure price changes may enter the index.

3.2. HICP Coverage, weights and prices

The ‘coverage’ of the HICP is defined as those goods and services which are included in
household final monetary consumption expenditure. It is classified according to the four-
digit categories and sub-categories of the COICOP/HICP (Classification Of Individual
COnsumption by Purpose adapted to the needs of HICPs).

‘Household final monetary consumption expenditure’ is defined as that part of final
consumption expenditure which is incurred:

–

–

–

–

–

by households irrespective of nationality or residence status, and

in monetary transactions, and

on the economic territory 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.

The ‘prices’ used in the HICP are the prices paid by households to purchase individual
goods and services in monetary transactions. The purchaser's price is the price for the
products the purchaser actually pays at the time of purchase; 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.

The ‘weights’ of the HICP are the aggregate expenditures by households on any set of
goods and services covered by the HICP expressed as a proportion of the total expenditure
on all goods and services within coverage.

13

3.3. Computation of the HICP

The relative distribution of consumers’ expenditure on individual products varies from
country to country. Hence, there is no uniform basket applying to all Member States.
Owner-occupiers’ shelter costs, expressed as imputed rents or mortgage interest payments,
are not regarded as part of the inflationary process and hence excluded.

The weights used in the compilation of HICPs may relate to a reference period up to seven
years prior to the current year. However, adjustments must be made each year for
especially large changes in the expenditure pattern. This minimises any disparity arising
from different update frequencies.

In order to keep HICPs broadly in step with each other and up-to-date in terms of market
developments, new products are to be included when they achieve a significant relative
importance. HICPs must be shown to be based on appropriate sampling procedures, taking
into account the national diversity of products and prices. The samples must be kept well
up-to-date,
in particular by banning the practice whereby missing prices are simply
assumed to be equal to the last observed prices. In order to measure pure price changes, the
prices included in HICPs need to be adjusted for changes in the quality. Certain
inappropriate practices, such as automatic linking, have been ruled out in this context.

Furthermore, HICPs have to be compiled using specified formulae. The MUICP is
calculated as a weighted average of the HICPs of the 11 countries of the euro-zone. The
index is computed as an annual chain index allowing for country weights to change each
year. The weight of a Member State is its share of household final monetary consumption
expenditure in the EMU total. The country weights used in 2000 are national accounts data
for 1998 updated to December 1999 prices. Weights in national currencies are converted
into euros using the irrevocably locked conversion rates.

The European Index of Consumer Prices (EICP) is calculated as an annual chain index for
the 15 EU Member States up until 1998. Starting in 1999, the EICP is calculated as an
annual chain index for the euro-zone, Denmark, Greece, Sweden, and United Kingdom.
The European Economic Area Index of Consumer Prices (EEAICP) further includes
Iceland and Norway. Country weights for the EICP and EEAICP are derived from the value
of household final monetary consumption expenditure in national currencies converted into
purchasing power standards (PPS). The euro-zone country weight reflects its share in the
EU and EEA totals.

Technical notes on the HICP and MUICP were given in Eurostat News Release 21/97 of
5 March 1997, memo 8/98 of 4 May 1998, and memo 2/00 of 18 February 2000 (which
list of HICP Regulations). Further details can be obtained from the
includes a full
to the Council on the harmonization of consumer price indices,
Commission Report
COM(1998)104 final.

4. HICPS AS DISSEMINATED BY EUROSTAT

The analysis of sources of inflationary pressure requires a sub-division of HICPs into
component parts relating to different product groups. The 100 or so sub-indices and
i.e. a version of the
weights published by Eurostat are based on COICOP/HICP,
international Classification Of Individual COnsumption by Purpose adapted for HICPs.

14

The Commission (Eurostat) publishes each month:

–

–

–

–

–

–

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

the European Index of Consumer Prices (EICP),

the Monetary Union Index of Consumer Prices (MUICP),

the European Economic Area Index of Consumer Prices (EEAICP),

about 100 sub-indices, their corresponding weights and weighted averages (EICP,
MUICP and EEAICP), and

the country weights corresponding to household expenditure in the EU total, the
EMU total and the EEA total.

the Commission (Eurostat) publishes a number of so-called ‘special
Furthermore,
aggregates’ that have been developed in collaboration with the Economic and Financial
Affairs Directorate-General and the ECB. They measure inflation for groups of products,
goods or services that normally are of particular interest to economic analysis. The special
aggregates may be further developed in the future according to users’ needs. Currently the
following special aggregates are published:

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

Goods (all-items excluding services),

Industrial goods,

Non-energy industrial goods,

Non-energy industrial goods, durables only,

Non-energy industrial goods, semi-durables only,

Non-energy industrial goods, non-durables only,

Energy,

Food including alcohol and tobacco,

Unprocessed food,

Processed food including alcohol and tobacco,

Services (all-items excluding goods),

All-items excluding energy,

All-items index excluding energy, food, alcohol and tobacco,

All-items excluding energy and unprocessed food,

Seasonal food,

All-items excluding seasonal food,

15

–

–

–

–

–

–

–

–

–

–

All-items excluding energy and seasonal food,

Energy and seasonal food,

Liquid fuels and fuels and lubricants for personal transport equipment,

All-items excluding liquid fuels and fuels and lubricants for personal transport
equipment,

All-items excluding alcohol and tobacco,

Energy and unprocessed food,

All-items excluding housing, water, electricity, gas and other fuels,

Electricity, gas, solid fuels and heat energy,

Education, health and social protection,

All-items excluding education, health and social protection.

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

–

–

–

–

–

the monthly index level,

the monthly rate of change,

the 12-month or annual rate of change,

the annual average index, and

the annual average rate of change.

The information is updated monthly and available to all users from the Eurostat database
‘NewCronos’. Furthermore, the euro-indicators site on Eurostat’s website contains topical
rates of change. The information can also be obtained through Eurostat’s Data Shop
network.

5. IMPROVEMENTS IN THE DESIGN OF THE INDEX

Since the preparation of the last Report from the Commission to the Council further
improvements have been achieved in the following areas:

5.1. Weights

The framework Council Regulation requires that HICP weights are sufficiently up-to-date
to ensure comparability whilst avoiding the cost of Household Budget Surveys more
frequently than every five years. Furthermore, it is required that implementing measures for
maintaining the ‘reliability and relevance’ of the HICPs should be adopted. Commission
Regulation (EC) No 2454/97 on minimum standards for the quality of HICP weights seeks
to meet these needs whilst imposing a minimum burden on Member States and allowing
maximum freedom in the methods used. The regulation aims at giving a minimum

16

guarantee of the quality of weights to construct the HICP and minimises disparities
between HICPs arising from different update frequencies.

Consumer price indices are fairly insensitive to changes in weights. Imposing the cost of
high precision for all weights by frequent and comprehensive updating would not have
been an acceptable solution for the Regulation on weights. Nevertheless, it was necessary
to give some assurance that large differences in the frequencies of updating do not lead to
non-comparability. The regulation sets a minimum standard whereby the weights used can
in general relate to a weight reference period up to seven years prior to the current year, but
adjustments need to be made more frequently if there have been significant changes in the
expenditure pattern. The requirement is therefore, each year, to check those weights which
are judged to be most critical for reliability and relevance and, hence, for the comparability
of the overall HICP. These are primarily the weights for sub-indices or their major
components where significant market changes have accompanied ‘divergent’ price
movements.

Divergent price developments are those which are markedly different from the overall
average, and can be detected from prices collected for the index. Significant market
developments can be detected through the normal intelligence gathering that is part of the
process of index construction. The regulation does not require new surveys but seeks to
make the best use of the statistical information available in Member States. It does not
require Household Budget Surveys more than every five years but allows those Member
States conducting small annual surveys to use the results of these to adjust weights where
there is reliable evidence of a change. It also allows information from the National
Accounts, market research and elsewhere to be taken into account. Member States are not
obliged to take account of the very latest developments, i.e. developments in the two years
prior to the review, although this would be desirable where major developments are known
to have occurred.

Where a weight
is identified as deficient, Member States should make an improved
estimate and introduce an appropriate adjustment, from the following January index, where
this would exceed the threshold effect of 0.1 % points on average for one year compared
with the previous year. The aim is to ensure that the adjusted weights are the best estimates
that can be made on the information available.

Further information on the quality of HICP weights and on the common reference periods
of the HICPs can be found in sections 6.4.3 and 6.4.5. The full set of items and country
weights are listed respectively in Annexes II and III to this Report.

5.2. Coverage of goods and services

Commission Regulation (EC) No 1749/96 defined 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, were not fully covered by
the initial coverage of the HICP. Council Regulation (EC) No 1687/98 amended
Commission Regulation (EC) 1749/96 with regard to the coverage of goods and services
and laid down a staged procedure to extend the coverage of the HICP. The first stage of
extended coverage entered into force in December 1999, taking effect with the index for
January 2000. The next step is regulated in Commission Regulation (EC) No 2166/1999
and will take place with the publication of the January 2001 index. The following sub-

17

indices had to be implemented in December 2000 according to Commission Regulation
(EC) No 2166/1999:

(a)

(b)

(c)

Social protection services provided within the home, such as home cleaning,
meals, transport for the disabled;

Hospital services (part) (COICOP/HICP 06.3);

Retirement homes, residences for the disabled.

With the concept of
‘household final monetary consumption expenditure’ Council
Regulation (EC) No 1687/98 defines both the goods and services to be covered and the
prices used in the HICP. The prices should be those which purchasers actually pay for a
product net of reimbursements, subsidies, and discounts. The Regulation is based on the
definitions laid down in the European System of Accounts (ESA 95).

The following table illustrates the staged procedure of the extension of the product
coverage of the HICP:

18

Table 1

Sub-indices fully implemented in December 1999

04.

HOUSING, WATER,
ELECTRICITY, GAS AND
OTHER FUELS

04.1.1. Actual rentals paid by tenants

04.1.2. Other actual rentals

04.4.1. Water supply

04.4.2.

Refuse collection

04.4.3.

Sewerage collection

06.

HEALTH

06.1.1. Medical products, appliances and

equipment

06.2.1. Medical services

Extended in 1999 to achieve a
harmonized treatment of subsidies

Extended to cover also ‘tax-like’
charges; excluded only if financed out
of general taxation

Extended to cover the net expenditure
of consumers on health goods and
services within the social security
system

To be implemented in Dec. 1999
using the net/net concept

06.2.2. Dental services

06.2.3.

Paramedical services

See 06.2.1.

See 06.2.1.

09.

RECREATION AND CULTURE

09.5.1.

Books

09.5.4.

Stationery and drawing materials

10.

EDUCATION

Extended to cover the net expenditure
of a consumer on educational goods
and services

10.1.1.

Pre-primary and primary education

See 06.2.1.

10.1.2.

Secondary education

10.1.3.

Tertiary education

See 06.2.1.

See 06.2.1.

10.1.4.

Education not definable by level

Extended to cover the net expenditure
of a consumer on computer, language,
and other such courses

19

(cont.)

11.

HOTELS AND RESTAURANTS

11.1.2.

Canteens

11.2.0. Accommodation services

12.

MISCELLANEOUS GOODS
AND SERVICES

Extended to cover the net expenditure
of consumers on canteens and
accommodation of boarding schools,
universities and other educational
establishments

12.4.0.

Social protection services (*)

See 06.2.1.

12.5.2.

Insurance connected with the
dwelling

12.5.3.

Insurance connected with health

12.5.4.

Insurance connected with transport

12.5.5. Other insurance

12.6.

Financial services n.e.c.

Extended to cover the service charge
of all kinds of insurance taken out by
tenants against fire, theft, etc. instead
of just contents insurance.

Implemented in December 1999 to
cover private sickness and accident
insurance.

Extended to cover also travel and
luggage insurance.

Implemented in December 1999 to
cover insurance such as civil liability
for injury and damage to third parties
or their property not arising from
personal transport equipment.

Extended to cover banking services
and other financial services.

(*) Sub index will be partly implemented in December 2000.

20

5.3. Geographic and population coverage

The framework Council Regulation 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. As regards the economic territory
and the consumers concerned, a harmonized definition of the geographic and population
coverage of the HICP was necessary for the purpose of achieving comparability and also
avoiding gaps or double counting when aggregating HICPs to the European Economic Area
Index of Consumer Prices (EEAICP), the European Index of Consumer Prices (EICP) or
the Monetary Union Index of Consumer Prices (MUICP).

Council Regulation (EC) No 1688/98 specifies that the HICP should cover all household
final monetary consumption expenditure which takes place on the economic territory of a
Member State. In particular, HICP coverage should include expenditure by foreign visitors
(‘domestic concept’) and expenditure by individuals living in institutions, but exclude the
expenditure by residents whilst in a foreign country. All private households should be
included, irrespective of the area in which they live — urban or rural — or their position in
the income distribution. Expenditure incurred for business purposes should be excluded.

The ‘domestic concept’ was chosen mainly because of the purpose of the MUICP to
provide a measure for price stability in the euro-zone. The objective is to measure price
changes in the euro-zone by aggregating price changes within each of the territories of the
individual Member States. Expenditure and price changes which need to be measured
within the economic territory of a Member State should include those affecting foreign
visitors and exclude those affecting residents whilst in a foreign country.

The coverage of the HICP is defined as those goods and services which are included in
household final monetary consumption expenditure. As the household sector includes
people living in institutions, their expenditure should be covered by the HICP weights.

On the grounds of comparability, Council Regulation (EC) No 1688/98 requires
adjustments to the geographic and population coverage. The Regulation states that HICPs
compiled using sub-index weights which reflect final monetary consumption expenditure of
a sub-set of households, rather than of all households, should be deemed comparable,
where this difference in practice accounts for less than one part per thousand of the total
expenditure covered by the HICP.

The requirements of the Regulation were implemented in December 1999.

5.4. Classification of goods and services

With the publication of the January 2000 index the classification of the HICP was updated.
Commission Regulation (EC) No 1749/1999 defines the new COICOP/HICP in accordance
with the final version of COICOP as defined by the UN in 1999 and replaces the one in
Commission Regulation (EC) No 2214/96 which was based on a provisional version of
COICOP. The new version adapted the list and the composition of the HICP sub-indices.
For the purpose of the HICP, some COICOP sub-indices had to be omitted because they
were not within the HICP coverage, e.g. narcotics or imputed rentals for owner-occupied
housing. Furthermore, certain COICOP classes (four-digit level) have been combined in
order to ensure that the weight was above one part per thousand in most of the Member
States.

21

The following indices are those mainly affected by the change in the classification:

08.2.0

08.3.0

09.1

09.1.5

09.2

09.2.1/2

09.2.3

09.3

09.3.1

09.3.2

09.3.3

Telephone and telefax equipment

Telephone and telefax services

Audio-visual, photographic and information processing equipment

Repair of audio-visual, photographic and information processing equipment

Other major durables for recreation and culture

Major durables for
instruments

indoor and outdoor

recreation including musical

Maintenance and repair of other major durables for recreation and culture

Other recreational items and equipment, gardens and pets

Games, toys and hobbies

Equipment for sport, camping and open-air recreation

Gardens, plants and flowers

09.3.4/5

Pets and related products including veterinary and other services for pets

09.4

09.4.1

09.4.2

09.5.1

09.5.2

Recreational and cultural services

Recreational and sporting services

Cultural services

Books

Newspapers and periodicals

09.5.3/4

Miscellaneous printed matter and stationery and drawing materials

12.3.1

12.3.2

Jewellery, clocks and watches

Other personal effects

Although it is not mandatory, some Member States were willing to provide 1999 data. Back
series were not included in the official HICP series for 1999 since they are not part of the
initial coverage. Nevertheless they may be used for the calculation of annual inflation rates
for the newly introduced positions during the year 2000.

5.5. Tariff prices

A tariff is a list of pre-established prices and conditions for the purchase and consumption
of one and the same good or service or of similar goods and services that have been
centrally fixed by the supplier, by the government, or by agreement to exert influence on
the consumption patterns. This happens by means of appropriately differentiated prices and
conditions according to characteristics of consumers, the level, the structure or the timing
of the consumption. Goods and services for which tariff prices exist account for a
substantial proportion of the overall expenditure covered by the HICPs. Since there was
significant scope for procedural differences in the construction of price indices for such
goods and services, the treatment of tariffs was considered an important potential source of
non-comparability. Commission Regulation (EC) No 2646/98 lays down minimum
standards for the treatment of tariffs in the HICP.

22

types of consumers, and between different

‘Tariffs’ exist for items such as postage, telephones, gas, water, electricity, as well as
national or local transport. They differ from other prices because they are centrally fixed,
not negotiable, and differentiated. The tariff structure reflects different prices as between
different
times of
consumption. The main problem with the treatment of tariffs in the HICP is that suppliers
can change the structure of the tariff or a single tariff price to the extent that consumers are
persuaded or obliged to make new choices in their consumption. For example, a telephone
supplier may introduce a low weekend tariff in order to reduce congestion during the busy
weekdays.

levels and different

The Regulation captures the legal aspect of accessing the required tariff data, some of
which is commercially sensitive, as well as the statistical aspect of using these data to
produce HICPs:

(a)

(b)

It clarifies the obligation of suppliers to provide Member States with the necessary
data. The legal basis is already given by Council Regulation (EC) No 2494/95.

It defines the procedure to follow when constructing a price index in the case of
changes in the tariff structure. The guiding principle is the Laspeyres fixed basket
concept with consumption patterns as up-to-date as necessary to determine the
immediate impact of the tariff change on the index population. The HICP should
reflect the price change on the basis of the changed costs of maintaining the
consumption pattern chosen by households prior to the given change in the tariff.
The aim of this principle is to avoid showing the changes in the consumption
pattern because of a change in a tariff.

The Regulation entered into force in December 1998.

5.6. Insurance

According to Commission Regulation (EC) No 1749/96, the HICPs have covered until
December 1999 house-contents insurance and motor insurance. Since December 1999,
taking effect with the index of January 2000, the HICPs cover all insurances connected
with the dwelling typically paid by the tenant, not only contents insurance. Furthermore,
the HICPs cover since December 1999 private health, civil liability, and travel insurance
[extended coverage following Council Regulation (EC) No 1687/98]. Life insurance is
excluded from the coverage of the HICP.

Commission Regulation (EC) No 2214/96 stated that ‘the weights and prices for insurance
should be net of claims. However, a price index of gross premiums may be used as a proxy
or estimate for changes in the net premiums’. As this definition left a significant scope for
procedural differences a further Commission Regulation (EC) No 1617/1999 was adopted
in 1999 to harmonize the treatment of insurance services in the HICP. Following the
HFMCE concept, the Regulation retains in general the ‘net concept’ for insurance. The ‘net
concept’ reflects the use of the HICP as measure of consumer price inflation in terms of
prices actually charged. A consumer pays with an insurance policy the service by the
insurance company of redistributing the risk. The consumer pays a fixed premium for the
policy, the insurance company collects the premiums from all insured households, makes
investments and reimburses claimants who are affected by damage or loss. Such payments
by the insurance company for repairs or replacements become part of household income.

23

The household budget surveys cover all expenditure, including expenditure financed out of
claims. Hence, the use of the ‘net concept’ avoids the possibility of double counting or gaps
and ensures that the overall HICP measures the change in the price for the service of
insurances, and the other sub-indices, in particular those for the purchase and the repair of
vehicles, for major household appliances and other durables, measure the change in price
for the repair and replacement of such products.

5.6.1. Weights for insurance

Following Commission Regulation (EC) No 1617/1999, weights should reflect the so-
called ‘service charge’ which is implicitly calculated as:

Gro ss insurance premiu ms ( net o f insur ance t ax)

+/-

Changes in the actuarial provisions other than for life-insurance risks

=

+

-

Actual premiums earned

Premium supplements

Claims due

+/-

Changes in technical provisions against outstanding life insurance risks

=

(+

=

Implicit service charge (net of insurance tax)

Insurance tax)

Implicit service charge

Premium supplements take account of the investment income of the insurance company.
Claims paid out and changes in the actuarial provisions need to be deducted from the gross
premiums plus supplements to arrive at the service charge. Changes in the actuarial
provisions consist of allocations by the insurance company to technical provisions for
outstanding risks, e.g. forecasts in respect to age for health insurance. Technical provisions
are important for insurances covering high risks.

The Regulation defines furthermore that
the weights should be based on average
expenditure over three years. This is aimed at using more stable estimates of the service
charge and minimising the risk of negative weights, since changes in the quantity of
reimbursements and repairs in circumstances following natural disasters or major accidents
are often distributed over a longer period of time.

According to ESA 95 payments as a result of claims are treated as current transfers from
the insurance companies to policyholders and other parties to the claim and, therefore, enter
into households’ disposable income. Commission Regulation (EC) No 1617/1999 on the
treatment of insurance requires explicitly that the weights of other sub-indices (e.g. those
for the purchase or repair of vehicles, for major household appliances and other durables)
shall include all expenditure financed out of claims where it is incurred by or on behalf of
the household sector. If for example a damaged car is repaired then the expenditure should
be reflected in the weight for COICOP/HICP 07.2.3 ‘Maintenance and repairs’. The same

24

holds true if the repair is paid directly by the insurance company, since the insurance
company is considered to be acting on the policyholder’s behalf.

5.6.2. Prices for insurance

As the ‘net concept’ (i.e. the service charge) is not applicable at an individual level for
pricing in practice, because the information is not available each month, gross premiums
are followed. Gross premiums or the value of the insured good are often indexed by the CPI
or by other price or cost indices. This effect should be reflected in the HICP; the gross
insurance premiums should not be adjusted to exclude this indexation.

Commission Regulation (EC) No 1617/1999 entered into force in July 1999.

Eurostat has not yet asked Member States to report on the application of the insurance
Regulation. Currently, draft supplementary guidelines on insurance are elaborated. The
Guidelines will aim at providing practical guidance on some technically difficult areas.

5.7.Health, education and social protection services

Commission Regulation (EC) No 1749/96 as amended by Council Regulation (EC)
No 1687/98 requires that extended coverage in the health, education and social protection
sectors shall be implemented in December 1999,
taking effect with the index for
January 2000. Thereby, the methodological details of inclusion should be specified in
accordance with the comitology-procedure. The timetable of inclusion for hospital services
and social protection services provided within the home, retirement homes and residences
for the disabled should be specified in accordance with the same procedure.

Council Regulation (EC) No 2166/1999 defines the methodological details of inclusion as
well as the timetable for the above mentioned services. The Regulation restates that the
purchaser prices of goods and services in the health, education and social protection sectors
to be used in the HICP should, in accordance with set standards and ESA 95, be the
amounts to be paid by consumers net of reimbursements. Reimbursements are defined as
‘payments to households by government units, social security administrations or non-profit
institutions serving households (NPISHs),
that are made as direct consequences of
purchases of individually specified goods and services, initially paid for by households.
Payments of claims
constitute
reimbursements.’.

to households by insurance

companies do not

The HICP sub-indices concerned should be calculated using a formula consistent with the
Laspeyres-type formula used for other sub-indices, i.e. they should reflect the price change
on the basis of the changed expenditure of maintaining the consumption pattern of
households and the composition of the consumer population in the base reference period. In
consistency with the Laspeyres principle and the relevant provisions of Commission
Regulation (EC) No 2646/98 on tariff prices,
the Regulation states that changes in
purchaser prices which reflect changes in the rules determining them should be shown as
price changes in the HICP and that changes in the purchaser prices resulting from changes
in purchasers’ incomes shall also be shown as price changes in the HICP (so-called
‘income-dependent prices’).

Member States may use procedures that differ from those described. They are required to
provide the Commission (Eurostat) with a description of the chosen procedures before they

25

are used. The provided information should be sufficient to assess the operation of those
procedures. The results of this assessment are contained in this Report (see Section 6.4.).

The provisions of the Regulation were implemented by Member States in December 1999
and took effect with the index for January 2000, apart from the following, which were due
to be implemented in December 2000 and should take effect with the index for
January 2001:

(a)

(b)

hospital services (part) (COICOP/HICP 06.3);

social protection services provided within the home, such as home cleaning,
meals, transport for the disabled (part of COICOP/HICP 12.4.0);

(c)

retirement homes, residences for the disabled (part of COICOP/HICP 12.4.0).

5.8. Guidelines on implementing measures of the HICP

In a number of cases Eurostat and the NSIs agreed not to make use of legal acts for
implementing the framework Council Regulation on HICPs but make use of Guidelines
instead, as a rapid, non-bureaucratic, practical and flexible tool for maintaining and
improving the comparability and quality of HICPs in the short term. Currently, there are
four Guidelines on implementing measures of the HICP. Most of these Guidelines have
been clearly considered as preparatory measures for Commission Regulations at a later
point in time.

5.8.1. Guidelines regarding revisions to HICPs

Guidelines on the revision of HICP series were agreed by the SPC in December 1997. They
lay down general principles. A common understanding in particular has been achieved on
the most important aspects:

(a)

(b)

(c)

(d)

Revisability: it is generally accepted that officially published HICP series may be
revised. The extent of a revision to any HICP series shall be agreed with Eurostat.

Correction of mistakes: if a mistake is discovered in the index calculation, the
Member State concerned shall immediately and at
its own initiative provide
Eurostat with information at the level of detail necessary to assess the impact on
the accuracy of the HICP and agree with Eurostat on the extent and the timing of
the revision to be made. The Member State concerned shall notify Eurostat on the
actions taken to prevent similar future occurrences.

Changes in national rules: to the extent that revisions due to changes in the system
of rules applied at the national level are judged by Member States to be required in
order to improve the accuracy of an HICP, such revisions shall be implemented.
The Member State concerned shall provide Eurostat with information at the level
of detail necessary to assess the impact on the accuracy of the HICP and agree
with Eurostat on the extent and timing of the revision to be made.

New or improved information: to the extent that revisions due to new or improved
information are required to improve the accuracy of an HICP, such revisions shall
be implemented. The Member State concerned shall provide Eurostat with
information at the level of detail necessary to assess the impact on the accuracy of

26

the HICP and agree with Eurostat on the extent and timing of the revision to be
made.

(e)

Changes due to stipulations in EU Regulations or Guidelines on HICPs: to the
extent that revisions to HICPs are needed to meet the requirements laid down in
present and future EU Regulations and in agreed Guidelines concerning the
implementation of HICPs, such revisions shall be implemented in accordance with
the given stipulations. Member States shall arrange that
information is kept
available at the level of detail necessary to demonstrate that the revisions are
consistent with the requirements concerned.

Besides these general principles there is also a common agreement on more technical issues
like timing, announcement of revisions, release of revisions, etc.

The amendment of these Guidelines is currently under discussion because it was felt that
harmonized rules on revisions were needed especially when important changes in
methodology or coverage were taking place. The discussion started because of experiences
with the implementation of Regulations (e.g. on extended coverage with the January 2000
index).

5.8.2. Guidelines on the treatment of price reductions in the HICP

The Guidelines contain two ‘regulating’ articles and one article with practical examples of
various price reduction schemes.

The Guidelines specify the kind of price reductions the HICPs should take account of.
Reductions in prices of individual goods and services should be taken into account
(i.e. deducted) if they are available to all potential consumers with no special conditions
attached (non-discriminatory), and if they are claimable (a) at the time of purchase or
(b) within such a time period from the actual purchase that they might be expected to have
a significant influence on the quantities buyers are willing to buy. In particular, reductions
in prices of individual goods and services which are likely or expected to be available again
at standard prices or elsewhere available at standard prices should be taken into account in
the HICP. In the case of specification changes the Guidelines refer to the requirements
regarding quality adjustment following Commission Regulation (EC) No 1749/96. The
requirements are supplemented by a description of how inducements should be treated.

Furthermore, the Guidelines give practical examples and general advice on how special
kinds of price reductions should be treated.

5.8.3. Guidelines on the treatment of rejected price observations

The Guidelines on rejected price observations specify the procedures to follow for the
validation and adjustment of price observations. The Guidelines require that in general the
prices reported by the price collectors should be accepted. Rejection or adjustment of
reported prices, for example the correction of an unusually high or low price change,
should not be done by automatic validation procedures, but only by reference to specific
information on the individual price observation, such as a repeated observation. If, as a
result of the validation procedure, the reported price has to be rejected, the rejected price
should be treated according to the rules for missing prices.

27

The Guidelines leave it to Member States also to use other than the specified methods.
Where a Member State does not use the described methods, Eurostat may request it to show
that the resulting HICP does not differ systematically from an HICP constructed in line
with the described methods by more than 0.1 percentage points on average taking one year
against the previous year.

5.8.4. Guidelines for the treatment of data processing equipment and notably personal
computers in the HICPs

Experience during recent years shows that the development of prices for data processing
equipment tends to differ very much from the development of the all items HICP at the
same time as a considerable expansion of the relative importance of such equipment in total
household consumption expenditure. In view of these circumstances and the significant
national differences among existing HICP practices in the treatment of data processing
equipment, there was an immediate need to establish a common framework within which
national rules should be defined and applied in order to secure the comparability, reliability
and relevance of the HICPs.

The Guidelines on data processing equipment aim at specifying how data processing
equipment should be included in the HICP. Member States should cover personal
computers and associated items in their HICPs. Where direct sellers are a significant source
of supply, they should be covered in addition to other outlets. Prices may be obtained from
magazines instead of or as well as direct observation in retail outlets.

Commission Regulation (EC) No 2454/97 defines the annual review of the weights at the
review’s sub-index level. The Guidelines on data processing equipment extend the check of
the weights in this special area to the level of the major components of the sub-index for
data processing equipment. Those major components should comprise a component index
for personal computers.

6. QUALITY IN THE INDEX

Quality can be considered as ‘fitness for purpose’. This can be understood as the ability of
an HICP to serve the purpose for which it is designed, which is mainly to provide a relevant
and comparable measure of inflation and convergence in the EU, and more particularly in
the context of the monetary policy in the euro-zone. Fitness, or ability to serve this purpose,
is determined by the totality of its properties and features; i.e. by the applied concepts,
methods, definitions and practices and their consistence with the purpose concerned.

Considering that HICPs are supposed to measure consumer price inflation in the EU on a
comparable basis, comparability can be seen as the major aspect of quality. Some further
important aspects composing the overall HICP quality should be stressed, e. g. relevance,
reliability, and timeliness of the index.

6.1. Relevance

Relevance refers to the purpose of the HICP. As noted in Section 3.1. above the aim of the
HICP is to measure inflation as distinct from the cost of living. It is therefore inappropriate
to criticise the HICP from the latter perspective. However, a great deal has been said over
the years about bias in CPIs without recognition of the fact that there is a limit to what can
be said with any degree of certainty. Unless the target has been precisely defined, it is

28

impossible to say by how much it has been missed. CPIs can be compared one with
another, and it can be argued that certain differences should be removed, as has been done
in the harmonization process, but there is no operational definition of the unbiased index by
which to judge all other CPIs. Each CPI has been developed over a long period of time with
the index compilers solving the operational problems in as consistent and coherent a way as
possible. The actual conceptual framework for any CPI is thus embodied in its history.
Meanwhile, efforts have been made to build alternative conceptual frameworks relying on
economic and statistical theory. These ideas have influenced index design but have not, for
the most part, determined actual operational practice.

The Treaty and the framework Council Regulation define the HICP. The Treaty required a
it should be a
consumer price inflation index;
Laspeyres-type index measuring the average change in the prices of goods and services
available for purchase in the economic territory of the MSs. This definition was agreed,
following the requirement of the Treaty, between Eurostat and the main users. As such, the
definition constitutes a broad operational definition of ‘inflation’.

the Council Regulation required that

There are many unresolved operational issues and, given the dynamic nature of European
economies, there always will be. These issues give rise to a concern that there is potential
for bias and probably actual bias.

Reduction of bias can only be achieved by progressive improvement of current practices
within a developing conceptual framework. It is in the latter where economic and statistical
theory can contribute.

As noted in the previous Report to the Council, the Boskin Report5 on the US CPI
challenged the question whether CPIs in general were of sufficient reliability in respect to
possible bias6. It took the view that the US CPI was biased upwards, mainly because of a
presumed failure to deal with the adjustment for quality change in goods and services
(especially in hi-tech areas such as PCs and surgical operations). Whilst rejecting the
suggestion that the size or the direction of any bias on this count can be determined without
defining and constructing an actual index the Working Party on HICP has recognised from
the outset that the treatment of quality change was the most likely source of bias as well as
non-comparability.

There is however an important issue of terminology. As regards HICPs, ‘validity bias’ in
Eurostat’s vocabulary can be described as the systematic difference between the index as
required by the HICP legal framework and the index as defined. That is the difference
between ‘concept’ and ‘definition’, e.g. the difference between the ideal ‘pure price HICP’
and the particular HICPs defined by Eurostat and the MSs. On the contrary, bias in the
vocabulary of the Boskin Commission takes a Cost Of Living Index (COLI) as the point of
reference. Utility may be based on costs that do not necessarily involve expenditure or
purchaser prices faced by consumers. They can be opportunity costs or physical
consumption valued at imaginary prices and may never result to actual expenditure. These
costs do not involve monetary transactions and are not relevant in the measure of inflation
required for monetary policy. Utility theory further involves assumptions about the nature
of the consumer and the hidden mechanisms by which prices are established. While the
Laspeyres index approach makes no such assumptions it is, nevertheless, accepted that

5

6

Boskin, M. J. et al., Towards a more accurate measure of the cost of living, December 1996.
See also previous Report [COM(1998) 104 final], p. 30.

29

agreement on how to treat quality change will necessarily involve a conceptual elaboration
of the consumer valuation of product difference and how it is to be measured.

Suitability of a CPI as an appropriate measure of inflation in this vocabulary means in fact
suitability of a CPI to approximate as close as possible an undefined COLI. This approach
does not seem applicable to HICPs as it suggests, contrary to the spirit and the letter of the
HICP legal framework, that there would be by concept and definition a validity bias in the
HICP.

6.2. Reliability

6.2.1. Representativity

Errors and biases may result also from the difference between the index as defined and the
index as designed (‘procedural biases’). This will depend on the extent to which the
methods chosen can in practice meet the required definition. It seems intuitively plausible
that certain procedures will give systematically different results from alternatives in most
contexts. On the other hand a particular procedure may give biased results in particular
contexts, e.g. quarterly price collection may give a downward bias relative to a monthly
index when prices are rising.

The difference between the index as designed and that actually produced in practice will
rather result in random errors. Errors resulting from a persistent failure to follow set
procedures may result in systematic errors in the HICP but by their nature operational
errors are more likely to have variable effects which may be expected to be random, e.g.
transcription or recording errors by price collectors.

The Boskin Commission gave the example in their Report that the indices for PCs are
likely to be biased upwards. But it is also likely that the indices for clothing are biased
downward while the weight for clothing far exceeds the weight for PCs. The view of the
Commission (Eurostat) is that there are in any CPI certainly biases at work, but they are of
different types, they have different effects according to product type, and they are unlikely
to be in the same direction. What the Commission (Eurostat) does not accept is to put a
concrete figure to any sort of bias.

Hill7 has attempted to clarify the relationships between CPIs intended to measure consumer
price inflation and those intended to measure changes in the cost of living (COL). He
concluded ‘that both objectives lead to the same kind of index formula in practice, provided
that ‘best practice’ is followed. Indexes that are ‘biased’ as measures of the cost of living
indexes can equally well be regarded as ‘biased’ measures of inflation. On the other hand,
in the second part of the paper it is shown that there could be significant differences
between the coverage, or domain, of indexes intended to measure price inflation and those
measuring changes in the COL and these could lead to significantly different results,
especially over the longer term. No consensus may yet exist over what should be the

7

Inflation, the Cost of Living and the Domain of a Consumer Price Index, invited paper submitted by
Peter Hill to the Conference of European Statisticians, joint ECE/ILO Meeting on Consumer Price
Indices, Geneva, 3-5 November 1999.

30

domain of a CPI.’. [Diewert8 reached a similar conclusion on the matter of formula in his
paper to the 1999 meeting of the Ottawa Group].

The domain of the HICP is, however, agreed, as is its form. The scope of the index was set
in the Council Regulation and the present coverage is close to that requirement. Steps are
being taken to ensure that actual samples of price observations fully represent the universe
of transactions within coverage. The model of the fixed basket of goods and services has
been accepted as the measure of inflation rather than the notion of constant utility. Inflation
is a monetary phenomenon, which involves only monetary transactions and actual
purchaser prices.

6.2.2. Precision

Sampling theory provides a basis for calculating errors for given sample designs. The last
Report from the Commission to the Council provided an overview of sampling methods
used in each Member State. The Report stated that most of the Member States followed
some form of purposive sampling rather than random or probability sampling and pointed
out that the theory has not been well developed for CPIs partly because of the difficulty of
defining a universe and partly because purposive rather than probability sample designs are
the norm.

However, the HICP minimum standard for sampling (Article 8 of Commission Regulation
(EC) No 1749/96) does not expressly deal with ‘sampling errors’ in the standard sense of
statistical theory, that is, uncertainty due to random or corresponding variation in the
sampling procedure.

Such sampling errors were, especially at the outset of the harmonisation project, considered
to be of secondary importance only, compared to possible bias due to misrepresentation.
The standard requires therefore more generally that HICP target samples shall ‘have
sufficient elementary aggregates to represent the diversity of items within the category and
sufficient prices within each elementary aggregate to take account for the variation of price
movements in the population’.

In order to analyse the different procedures in the Member States and to harmonize
sampling methods a specialised Task Force (TF) on sampling was set up in 1999. The TF
has taken the view that a more positive attitude to simulating sampling errors should be
developed, especially in the light of positive experiences in France, Sweden and the United
Kingdom, which were approximating or had simulated sampling variances for their
national CPIs. These exercises were appreciated by the public.

The TF presented a first draft for a Regulation on sampling which was discussed at the
HICP WP meeting in spring 2000. The draft suggested that the tenets of sampling theory
should provide some basis for minimum standards in HICP sampling. It advocated the
computation of sampling errors. However, given that such estimates lack validity under
purposive sample designs it
to seek less
comprehensive and costly evidence on precision. The aim will therefore be to target

is judged more appropriate for Eurostat

8

Diewert, Erwin, The consumer price index and index number purpose, paper presented at the Fifth
meeting of the International Working Group on Price Indices (The Ottawa Group), Reykjavik, Iceland,
August 1999, revised: December 1999.

31

requests for control data whilst continuing to explore more sophisticated measures of
precision.

The TF is currently elaborating its final Report to be submitted to the WP meeting in
October 2000. The Report is expected to elaborate further the precision issue.

6.3. Comparability

6.3.1. Comparability of use of different formulae

The framework Council Regulation requires that the HICPs shall be a Laspeyres-type
index. Though the HICPs and CPIs produced by Member States may differ in detail, they
can be broadly described as Laspeyres-type indices. The HICPs produced by Member
States differ in the frequency of updating weights. As already mentioned in Chapter 5, most
countries apply a ‘fixed base index formula’, updating the weights in three to five-year
intervals. France, Italy, Austria, Sweden, the United Kingdom, and Norway compute a
chain-index with annual weight updating.

In order to obtain a consistent set of HICPs with sub-indices allowing for aggregations of
several sub-indices, groups of countries, the EMU, the EU or the EEA as a whole, it was
necessary to present the HICPs as if they were all computed in the same way. Hence, it was
necessary to apply a common index reference period and a common weight reference
period. The framework Council Regulation sets the index reference period to 1996=100. In
order to receive a common weight reference period, the item weights for all Member States
need to be expressed at the same prices. This is done by price updating the weights in
January of the current year to prices referring to the December of the preceding year.

With the implementation of the two Council Regulations on extended coverage in
January 2000, the index reference periods of the new sub-indices introduced at this time
were set to December 1999 = 100 in comparison to the index reference period of the
already existing sub-indices which is 1996 = 100. Hence the index figure published in
January 2000 for those sub-indices reflect the change in price levels since December 1999.
Since HICPs are aggregated using a chain index formula, the extended coverage was
integrated into the HICP without any computational problems. Higher level indices are
aggregated in the year 2000 by linking weighted averages of lower level indices since
December 1999 with the level of the corresponding aggregate in December 1999. This
means that the annual rate of change for the all-items index in, for example, April 2000 is
the change from April 1999 to December 1999 (using the old coverage) combined with the
change from December 1999 to April 2000 (using new coverage).

6.3.2. Comparability between Member States

Comparability is a relative concept of systematic differences between HICPs on account of
differences in definitions, methods and practices which can turn to bias where the relative
difference is referred to the known ideal or correct definition, method or practice.

The regulatory framework is designed to ensure comparability, reliability and relevance of
HICPs by a process whereby the practices followed in the construction of any one index are
judged against alternative practices followed in the construction of HICPs generally. In
order that such judgements are neither ad hoc nor arbitrary it was necessary to have a
decision process that gives some guarantee of improving the quality of HICPs. This
involves an assessment of the effects of different practices on the HICP, a threshold for

32

determining when action is necessary and a process for choosing the preferred or
acceptable practices.

The HICP Working Party has to a large extent been proven as an effective platform where
consensus is reached on which practices are to be preferred and why or, where this is not
feasible, decisions are taken on which practices should be taken as reference (‘standard
reference practice’ or ‘minimum standards’).

This approach also suggests a way by which to assess compliance not only with the
comparability requirement but to some extent also with the reliability requirement. It is
clear that for operational purposes some criterion is necessary in order to distinguish
between comparable and non-comparable practices; no such rule was established in the
framework Council Regulation (EC) No 2494/95.

The HICPs must be given with an appropriate precision for both the indices themselves and
the harmonised inflation rates based on them are expressed to one decimal place. It is
appropriate that the threshold for accepting non-comparable practices be 0.1% point on the
average annual HICP. A difference of 0.1% point on the annual rate of measured inflation
has been agreed in practice for specific implementing measures on a case by case basis and
the one per thousand weights rule on the HICP has been established in respect to coverage.
Appropriate statistics and tests for establishing the actual effects of differences in current
practices on the HICPs have or are being developed such as the test for ‘critical weights’
and the ‘standard reference indices’.

these effects may inter-relate. The theoretical

However, it should be stressed that the absence of quantitative estimates of reliability is due
to the considerable difficulties involved. There is no way of consistently aggregating
systematic differences deriving from different sources to a single figure, as there is little or
no evidence on whether
framework
supporting actual
index construction is incomplete and the considerable resources
necessary to implement ideal practices are not warranted in the absence of actual evidence
of bias. Nevertheless, there is no reason to be complacent, and even some small evidence
would be better than none. Comparisons of HICPs one with another in the depth achieved
under harmonization are an efficient way to produce this evidence. Standard reference
in effects above the 0.1%
practices are specified where existing practices can result
threshold and are those practices which by consensus among national CPI experts are the
least biased or the best among available practices.

6.4. The operation of the HICP standards

At the outset of the harmonization project Eurostat’s approach was to first set up a list of
possible differences according to the sources of non-comparability that have been
identified. As a result of the on-going discussions in the WP other sources of non-
comparability were added. Based on those sources, several regulations have been adopted
and new Guidelines agreed.

Table 2 summarises the main identified potential sources of differences.

The harmonization project has already focused on most of these issues within the
regulatory framework which has been established. It has so far achieved a ban on practices
considered the most likely sources of potential bias.

33

Eurostat sent a ‘Compliance Monitoring Questionnaire’ (CMQ) to the Member States in
mid 1999. This questionnaire covered all Regulations so far adopted and asked Member
States to give detailed information on their compliance. The questions were directly related
to the requirements as stated in the Regulations. The questionnaire was split into five
phases taking account of the workload put on Member States. The timetable was scheduled
for the period between the end of May 1999 and the end of January 2000.

Some information, e.g. the replies to the questions on ‘newly significant goods and
services’, was not strictly comparable for different reasons, misunderstandings as well as
non-availability of the data, and therefore not usable in this Report. It was furthermore not
possible for all Member States to reply to the questionnaire in time. Some replies to phase
III that should have ended in October 1999 are still missing. The replies to all phases of the
questionnaire will be used to develop test statistics in the near future.

The following paragraphs give an overview of the operation of the standards in the Member
States as well as the current discussion in the Working Party and specialised Task Forces.

Following Article 2 of Council Regulation (EC) No 1687/98 on extended product coverage
and Article 2 of Council Regulation (EC) No 1688/98 on extended geographic and
population coverage, the Commission (Eurostat) should assess the operation of these
provisions and Report to the Council within two years after the date of entry into force of
the two Regulations (August 1998). The Report should in particular assess the operation of
the concept of household final monetary consumption expenditure in relation to relevant
alternative concepts. Furthermore, the Commission (Eurostat) should assess the operation
of the procedures laid down in Council Regulation (EC) No 2166/1999 concerning the
treatment health, education and social protection services.

The result of this assessment is included in Section 6.4.4.

34

Table 2

Main identified potential sources of differences

Source

Quality adjustment

Long-
term
effects

(+++)

Formula for elementary aggregates

(++)

Age of item group weights

(++)

Missing observations, substitutions

(++)

Basic index construction

(++)

Editing - data preparation

Inclusion/exclusion of item groups

Price re-basing of weights

Number of elementary aggregates

Repres. items vs random sampling

Regional differences

Types of outlets

Sampling error

Discounts (*)

(+)

(+)

(+)

(0)

(0)

(0)

(0)

(0)

(0)

Short-
term
effects

(+)

(+)

(+)

(+)

(0)

(+)

(0)

(0)

(++)

(++)

(++)

(++)

(++)

(0)

Minimum standard

Yes

Yes

Yes

Yes

Regulation

Regulation

Regulation

Regulation

Partly

Regulation

Yes

Yes

Yes

Guideline

Regulation

Regulation

Partly

Regulation

No

Pending

Indirectly Regulation

Indirectly Regulation

No

yes

Pending

Guideline

(*) This result is valid as long as the rates of discounts do not vary over time. The HICP Working Party
has taken the view that such rates may vary considerably and that national practices concerning the
treatment of discounts should be harmonized.

(0) =

unlikely

(+)=

(++)

(+++)

possible

=

=

likely

very likely

35

6.4.1. Conceptual problems for technically ‘difficult’ item groups

Some difficult categories such as health and educational services, where there are major
institutional differences between Member States, will be fully covered by the HICP with
the index for January 2001 at the latest.

A specific Commission Regulation concerning the treatment of
insurance services
established a harmonized methodology for insurance that is necessary to ensure that the
resulting HICPs meet the comparability requirement and the treatment of insurance is
consistent with the definitions laid down in ESA 95. A Task Force on insurance services is
about to put to the WP a proposal for Guidelines complementing the Insurance Regulation.

As a result of empirical studies carried out by specialised HICP Task Forces, Guidelines
concerning the treatment of clothing, durables and cars have been drafted. These
Guidelines could not be followed up any further because of their strong interaction with
quality change, sampling and seasonality issues. They remain pending until the satisfactory
settlement of the general aspects involved.

Through the initial exclusion of certain items relating to Owner-Occupied Housing (OOH),
such as imputed rents, mortgage payments or major maintenance and repairs, EU
statisticians have removed a significant source of ‘non-comparability’ between HICPs. The
question of whether and how to include it in form of prices for new owner-occupied
dwellings on net acquisition basis in the HICP has been investigated by another HICP Task
Force. The TF on OOH has already put to the WP its proposals concerning the treatment of
OOH in the HICP, and a decision is being sought from the SPC.

The treatment of financial services directly charged is the only one among these
conceptually and technically difficult item groups which remains to be solved. In view of
considerable differences in banking practices, price movements and weights, specific
measures in form of a draft Commission Regulation are currently being discussed at the
HICP Working Party.

6.4.2. Newly significant goods and services

The requirement
in the framework Council Regulation to ‘maintain the relevance of
HICPs’ means that steps must be taken to ensure that HICPs keep broadly in step with each
other and are up-to-date in terms of market developments. The corresponding minimum
standard is aimed at ensuring that new products are incorporated in the HICP as soon they
achieve a sales volume of over one part per thousand of total consumers’ expenditure in the
Member State. Eurostat is acting as an information exchange, informing each MS of
products newly included in other Member States’ HICPs.

In the context of the compliance monitoring exercise MSs reported on the procedures they
had put in place in order to systematically seek identifying newly significant goods and
services.

Typically, it is the price collectors which are supplying information on new goods and
services (whether genuinely new or replacement products). Head offices observe centrally
market developments and assess their observations together with the information supplied
by price collectors.

36

In addition, Member States use information from National Accounts, the Household Budget
Surveys or other surveys like food surveys or import statistics. Furthermore, they examine
magazines and periodicals (trade and consumer journals, commodity publications) and
review newspapers and television advertisements. They collect information from industry,
trade organisations, and trade representative bodies, institutional users, and associations of
retailers and producers and consumer associations.

In Member States with fixed base indices the search for newly significant goods and
services is ongoing but particular focus is paid at each re-basing period when target
samples are reviewed and new replacements or additional items are taken into the HICP. In
Denmark each month one of the twelve main COICOP/HICP groups is checked, so that
over one year all groups are checked. This may be seen as the most systematic procedure
reported by a Member State and might be recommended as such.

The definition of ‘newly significant goods and services’ was subject to discussion, as it was
meant to leave space for different interpretations. The sentence ‘their estimated consumer
expenditure has become at least one part per thousand of the expenditure covered by that
HICP’ was interpreted in mainly two ways:

(a)

(b)

Each product that was reported by a Member State had reached a significant level
of consumption and counted for more than one part in a thousand in the Member
State or

A certain group of products had reached a significant level of consumption which
counted for more than one part in a thousand and the Member State had reported
some new representative items.

The list as published in the last Report to the Council (Section 12.5, table 9) reflected the
discussion on the interpretation of the standard by containing the reported goods and
services which were grouped to product groups.

Member States were asked to report the approximate weight of those products or product
groups on the list which they had not explicitly included in their HICP. Although a
significant number of newly significant items were added to the HICPs, not all Member
States were able to provide the required information due to practical reasons as well as due
to misinterpretation. Results given by Member States were not comparable and therefore
not contained in this Report.

In the Compliance Monitoring exercise, Member States were asked to update the newly
significant product
list. The resulting summary list of products was presented to the
Member States in autumn 1999 (see the finalised version in tables 4 and 5). The discussion
on this list showed that the term ‘newly significant’ was generally interpreted as ‘being new
in the index’.

Following HICP standards, there are two different cases by which new products are
implemented into the index if they have gained a significant part of consumption:

(1)

Replacement: either the new product replaces an already existing product that has
lost importance; in other words a more up-to-date representative for a need or
purpose already covered by the index is brought into the sample (e.g. a special
variety of car tyres is replaced by a more representative one),

37

or

(2)

Addition: the new product is brought into the index in addition to the already
covered products as representative for a newly significant or modified need or
purpose.

Those additions can have several reasons:

(a)

or

(b)

either a new product that had not been represented in the index and would
not normally be considered as a replacement because it was radically
different from the existing variety (e.g. mobile phones). It would be added as
a new category within an existing category,

that was available but not explicitly represented because its
a product
consumption was too low. Inclusion was not a replacement within a category
but a new category within a category (e.g. spaghetti in Denmark or lamb
meat in the Netherlands).

In case (1) (Replacement),
replacement belongs should not be changed.

the weight of the COICOP/HICP category to which the

In case (2) (Addition), the price of the new product is collected in addition to the already
observed product, the minimum standard in Commission Regulation (EC) No 1749/96
offers one of the following treatments:

(a)

(b)

(c)

either adjusting the weights of the relevant category of COICOP/HICP or

adjusting the weights within the relevant category of COICOP/HICP or

assigning part of the weight specifically to the new product [underneath the 4-digit
level of COICOP].

Replacements are not affected by this standard because they do not have an effect on the
weights.

The differences between newly significant products and replacements may be summarised
as follows:

38

Table 3

Newly significant goods and services versus replacements

Additions
(newly significant products)

New type of product (not yet existing or
implicitly covered) but not necessarily
(technically) new (e.g. lamb meat)

Replacements

Same type of existing product

For the first time consumed to a significant
extent (one part per thousand)

Not applicable

Can consist of different variants (brands,
models): one or many products are
introduced (serving the same purpose)

The weight is either not yet existing or needs
to be adjusted in order to account for the
newly significant product

One to one replacement: one
existing price representative is
exchanged into another more
representative product

No impact on weights

As a result of the discussion the minimum standard in the regulation was split into its
components as follows:

–

–

–

there used to be a certain expenditure group which was not explicitly covered by
the Member State’s HICP because its weight was lower than one part per
thousand;

this expenditure group is now explicitly covered because it has reached one part
per thousand of the expenditure covered by this HICP;

this group is represented by a certain newly significant good or service which itself
does not have to have a weight of at least one part per thousand of the expenditure
of this HICP.

Following the standard, Member States were asked to check the reported products as
potential price representatives for a certain expenditure group not yet or implicitly covered
in their indices.

It was agreed that Member States need to check

(a)

(b)

(c)

(d)

whether the proposed products represent an expenditure group that is not yet
explicitly covered by the index and

whether
expenditure represented in the index,

this expenditure group has reached one part per thousand of the

how this expenditure group should be explicitly implemented into the HICP and

whether it could be represented by more appropriate price representatives than
those proposed (some appropriate representatives might be contained in the list as
reported by other Member States).

39

Two lists with newly significant goods and services were agreed, one with the products
proposed by Member States, one with product groups suggested by Eurostat (see Tables 4
and 5).

Both tables with newly significant goods and services take account of the distinction
between newly significant goods and services and replacements as made above. Therefore,
products reported by MSs that were obviously results of replacements are not contained in
the tables.

In case of exclusion Member States should provide evidence that the maximum expenditure
that could be represented by each of the proposed products was below one part per
thousand of the expenditure covered by their HICP. Where appropriate, products should be
grouped to higher-level expenditure groups (e.g. ecological/organic carrots and potatoes
belong to the same COICOP sub-index and might therefore represent the same expenditure
group).

Table 5 is meant to be a basis for considering whether the HICP covers expenditure groups
which in Eurostat’s view could have gained on importance over the last few years. The list
is not exhaustive.

Compliance monitoring provided some rough indication — see also Tables 10 and 11 on
the number of elementary aggregates and prices for selected expenditure groups as reported
my MSs — that there may be more products which should be considered beyond those
currently reported by Member States. The number of elementary aggregates or the number
of price representatives to be added to HICPs should be sufficient to represent the diversity
of newly significant items and the variation of their price movements.

The operation of the standard has shown that MSs are making considerable progress in
monitoring consumers’ expenditure on newly significant products and significant parts of
consumers’ expenditure are added to the HICP. The formulation of the standard seemed
interpretable in different ways and this gave scope for further clarification. Subject to its
strong interaction with sampling rules the standard may need formal amendment.

40

Table 4

Newly significant goods and services proposed by Member States

Goods/services
Breakfast muesli mixture

Coicop
1.1.1

Buckwheat paste,
ecological
Frozen pizza

Tortellini (pasta with
meat)
Corn Flakes
Vegetarian burgers

Lamb meat
Ecological eggs
Ecological carrots

Ecological potatoes

Dietetic biscuits
Ice tea (in cans or
bottles)
Champagne
Micro-fibers anorak
Computer desk

Cooking appliance for
the table (raclette,
pierrade)
Air conditioner

Steam-cleaning machine
Energy-saving bulb

Halogen bulb

Disposable plates
Ginseng extract

Malt extract

One-day contact lens
Liquid Petroleum Gas
(LPG)

1.1.1

1.1.1

1.1.1

1.1.1
1.1.2

1.1.2
1.1.4
1.1.7

1.1.7

1.1.9.
1.2.2

2.1.2
3.1.2
5.1.1

5.3.1

5.3.1

5.3.1
5.5.1/2

5.5.1/2

5.6.1
6.1.1

6.1.1

6.1.2/3
7.2.2

Coicop
7.2.3

7.3.1

9.1.1

9.1.1

9.1.1
9.3.1

9.3.1
9.3.1
9.3.2

9.3.2

9.3.2
9.3.2 or 12.3.2

9.3.4/5
9.3.4/5
9.4.1

9.4.1

9.4.1

9.4.1
9.4.1

11.1.1

11.1.1
11.1.1

12.1.1

12.1.1
12.3.2

Goods/services

Annual car
examination
Eurostar / Le Shuttle
rail fares
Decoder for digital
TV
Midi stereo system

Personal CD player
Knowlegde game
(e.g. trivial pursuit)
Garlands of paper
Chinese lanterns
Body-building
equipment
Underwater
equipment
Inline-Skates
Knapsack

Veterinary
Dog grooming
Annual fee for
gymnasium
Dancing lessons

Amusement park
ticket
Ski-lifts and similar
Access to cross-
country skiing piste
Entry fee for
discotheque
Fast-food meal
Meals delivered to
the customer’s home
(e.g. pizza)
Thalassotherapy
sessions
Solarium sessions
Car seat for children

41

Table 5

Newly significant goods and services suggested by Eurostat

PC work place (incl. accessories and games)

a) Hardware

Zip-drive

DVD-drive

Disk writer

Scanner

Joystick/gamepad/racing wheel for computers

Personal digital assistant

Internet video camera

b) Software

Language course software

Voice recognition software

CD-ROM or diskette with encyclopedia

Computer game software, e.g. Tomb Raider III, Age of empires

Video games

a) Hardware

Joystick/gamepad/racing wheel for video consoles

Video consoles

b) Software for e.g. Dreamcast/Game Boy/Nintendo 64/Playstation

Other accessories for the house

Battery recharger

Rechargeable batteries

Telephone equipment

ISDN telephone, cordless

ISDN telephone/fax combination

Handsfree facility for mobile phone (in the car)

9.1.3

9.1.3

9.1.3

9.1.3

9.1.3

9.1.3

9.1.3

9.1.3

9.1.3

9.1.4

9.3.1

9.3.1

9.3.1

9.3.1

05.3.1/2

05.5.1/2

8.2./3.0

8.2./3.0

8.2./3.0

42

6.4.3. Quality of weights

As described in Chapter 5, a specific Commission Regulation requires where necessary a
minimum action of review and adjustment.

Eurostat asked Member States compiling fixed base indices for the results of their
1998/1999 reviews. In none of the responding Member States any weight had shown a
change to the extent that it had to be altered.

Eurostat made some test comparisons in order to check roughly the plausibility of the
results. Eight sub-indices were sampled which had shown for six chain-index countries
extraordinary development in the weights between 1996 and 1999. The eight sub-indices
showed totally different developments over the chosen period in each country. None of the
indices showed a systematic development such as to allow projection to fixed base
countries. Eurostat also checked for the reference period of certain lower level weights. The
13 MSs which responded did not report reference periods older that those allowed from the
HICP standard on weightings.

To complete the picture, replies are being sought from those MSs which could not report
their results in time for this Report. However, there is evidence that the quality of weights
has improved with harmonization. Table 8 in Section 6.4.5. shows that weights are generally
more up-to-date since 1996 than was previously the case. Italy, Luxembourg and Austria
now update annually and other Member States have updated or plan to update weights
shortly.

6.4.4. Household Final Monetary Consumption Expenditure (HFMCE)

The definition of coverage is aimed at ensuring that goods and services according to
COICOP/HICP are incorporated in the HICP and sub-indices with appropriate weights are
transmitted to Eurostat. It extends, by reference to the European System of Accounts
(ESA 95), HICP coverage to all goods and services falling within the scope of ‘household
final monetary consumption expenditure’ (HFMCE) where they achieve a sales volume of
over one part per thousand of consumers’ expenditure.

The operation of the one per thousand rule has shown that
its formulation may be
problematic to the extent that Member States could, by too strict application of this rule,
exclude in principle an important part of the relevant consumption expenditure. Although
there was no such evidence, under certain circumstances this could lead to significant
differences in the measured rates of inflation. As a preventive measure, Eurostat intends to
propose formal amendment to the formulation.

The extension of HICP coverage along the concept of HFMCE was controversially
discussed until its adoption by the Council in 1998. There were arguments about the
relevance of the concept of HFMCE for the purpose of inflation measurement and its
practical implications.

One argument was that ‘household actual final consumption’ instead of ‘household final
consumption expenditure’ was the correct concept
to follow. Social transfers in kind
constitute the main difference between the two concepts. Actual final consumption includes
them while HFMCE excludes them. This is consistent with view that consumer inflation is a
monetary phenomenon, manifest only in actual monetary transactions and prices actually

43

faced by consumers. HFMCE is seen as the appropriate operational expression of the scope
of the HICP defined in the framework Council Regulation as ‘the prices of goods and
services available for purchase in the economic territory of the Member State for the purpose
of directly satisfying consumer needs.’.

Most of the arguments against the HFMCE concept were mainly founded on the theoretical
appropriateness or the practical preference of measuring ‘gross prices’ (i.e. the total price of
the product whether it is actually paid by consumers in full or in part) instead of ‘purchaser
prices’ (i.e. net prices actually paid by consumers). The understanding of inflation as purely
monetary phenomenon and the HFMCE concept are both conclusive in that purchaser prices
should be used in a consumer inflation index. The difficulty to obtain purchaser prices on a
monthly basis was nevertheless addressed expressly in cases where it actually mattered,
notably in measuring in ‘gross’ terms the service charge in insurance services.

It was also argued that for reasons of comparability,
the government sector and in
consequence most of social protection, health and education services should have been
excluded given the widely varying institutional arrangements in different Member States.
The Commission (Eurostat) maintains that for the purposes of a consumer inflation index
there is no danger of introducing non-comparability by such services, as long as prices are
taken ‘net’, i.e. the index measures the change in the prices actually paid by consumers in
exchange for the services concerned. It was notably argued that changes in social protection
policy and particularly in reimbursements financed, for instance, through changes in direct
taxation and vice versa could distort the picture of inflation provided by an HICP including
health, education and social protection services. A similar argument may apply to newly
introduced charging schemes for goods or services previously available to consumers free of
charge, to the extent that the additional charges are compensated by reductions elsewhere in
the financing circuit. The argument is that in a global context the net inflationary effect
might be zero, contrary to what would be reflected in the HICP. The Commission (Eurostat)
recognises that changes in reimbursements and the effect of newly introduced charging
schemes 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, either residents or
foreigners, and therefore need to be reflected in the HICP.

Particular concerns were raised regarding the implications of measuring changes in the so-
called ‘income dependent prices’, which are predominant in the health, education and social
protection sectors in most of the Member States, in the context of a Laspeyres-type index.
The adoption of this standard by the Council in 1999 was a milestone in the harmonization
process as it actually enabled the implementation of extended coverage to the extent that it
provided technical solutions to previously unresolved problems.

Doubts were also raised about the implementation of the domestic concept which was felt as
being correct in theory but difficult to apply accurately in practice. Cross-border purchases
of petrol, alcohol and tobacco were in some cases a particular concern. The Commission
(Eurostat) although it acknowledges the difficulty in obtaining accurate weights, is of the
opinion that the application of the domestic concept removed an important source of
inconsistency, particularly with a view to providing meaningful and consistent aggregate
indices for the euro-zone.

With the index for January 2000, the HFMCE concept is applied in the Member States.
Imputed rents for owner-occupiers and life insurance are two areas falling within the
ESA 95 definition of HFMCE that are not covered by the HICP. As stated in Section 6.4.1,

44

the inclusion of Owner-Occupied Housing (OOH) following the net-acquisition concept is
currently under discussion in the HICP Working Party. A final decision is expected in 2000.

Three Member States have reported so far some specific difficulties with the implementation
of the HFMCE concept.

The United Kingdom reported that the main impact the HFMCE concept had on the HICP
was the need to switch to using National Accounts data as the source of the weights. As the
NA data were not classified to 4-digit COICOP level, this was a time-consuming task. The
extension of product coverage did not have too much impact as many of the new price
indicators needed already existed, although new data had to be collected for a few new
indices. There were only two areas where price indicators had to be included where funding
was partially government and partially household: university tuition fees and prescription
charges. For both, existing price indices could be used.

France stressed that the extension of coverage was a heavy work burden, especially the
design of ‘net’ indices for health (goods and services) and social protection services,
including the estimation of ‘net’ weights. Furthermore,
the modification of the data
processing software for the new HICP, according to the extension of product coverage and
the change in weights used as well as the provision of retrospective data one year backward
in order to get the best estimates for comparable annual rates of change were resource-
intensive.

Austria reported difficulties with modelling and getting timely information on income
distribution in order to reflect income dependent prices in the social protection area.

Member States reported on the changes they made with the January 2000 index (X indicates
changes, C indicates compliance already before January 2000) in implementing extended
coverage according to HFMCE as follows:

45

Table 6

Changes in coverage made with January 2000 index

Increase of total
expenditure covered
by HICP
(%)

Geographic coverage
(including domestic
expenditure by non-
residents, excluding
expenditure by
residents abroad)

Population coverage
(individuals living in
institutional households,
poor and rich, urban and
rural)

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

The Netherlands

Austria

Portugal

Finland

Sweden
United Kingdom

Iceland

Norway

7

4.5 (due to product
coverage)

12.1 (5.2 due to
product coverage, 6.9
due to domestic
concept)

5.8 (due to extension of
geographic and
population coverage)

7.3 (due to extension of
geographic and
population coverage)

3.8 (due to extension of
geographic and
population coverage)

10 (3.5 due to inclusion
of tourists, 1.5 due to
product coverage, 1
due to institutional
households, 3.5 in 2001
due to product
coverage)
6.7 (3.4 due to
geographic coverage,
3.3 due to population
coverage)

X

C

C

X

X

C

X

C

X

C

X (**)

X

X

C
X

X

X

X

C

X (*)

X

X

C

X (*)

C

C

X

C

C

X

C
X

X

(*) Individuals living in institutional households are not covered because of their small relative importance

(**) From 1996 to 1999 the Austrian HICP related to the domestic concept but included not only household
consumption expenditure but also all foreign consumption expenditure. In order to adjust this concept
the weight of division 07 (traffic) was reduced by 0.7 percentage-points and the weight of division 11
(hotels and restaurants) was reduced by 1.0 percentage points, both figures relating to 1998
expenditure.

46

The extension of coverage has an impact on the annual rates of change of the HICPs because
of differences in coverage between 1999 and 2000. Recognising this inconvenience, stated
by the Commission (Eurostat) and the ECB in the minutes of the Council meeting in 1998,
Denmark, Finland, Germany, Ireland, Italy, the Netherlands, Spain, Sweden and the United
Kingdom tabled a joint declaration that with the first release of the extended index they
would seek to provide, in a cost effective way, their best estimates of comparable data for at
least
the twelve preceding months. Six Member States have provided data one year
backward for the newly implemented sub-indices and the re-defined sub-indices.

Another, though less accurate, way of assessing the impact of extended coverage on the all-
items HICP is to look at the difference in the annual inflation rates by comparing the official
HICP (based on full coverage from January 2000) with an HICP excluding health, education
and social protection as in Table 7. This provides a first but rough idea of the impact, to the
extent that it excludes somewhat more than the extended coverage has added to the index.

47

Table 7

Annual rates of change (difference in % points between the HICP

including and excluding extended coverage)

Apr-00

Mar-00

Feb-00

Jan-00

Apr-99

Mar-99

Feb-99

Jan-99

0.0

0.0

-0.1

0.1

-0.1

0.1

0.0

0.0

0.1

0.0

0.1

-0.1

0.0

0.0

0.1

0.1

0.1

0.0

0.1

-0.1

0.1

0.1

0.1

-0.1

-0.2

0.0

0.1

0.1

0.0

0.0

0.1

0.0

0.1

-0.1

0.1

0.0

0.0

0.0

0.0

0.0

0.0

0.1

0.0

0.2

-0.1

-0.1

-0.1

-0.1

Belgium

Germany

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

Euro-zone
(MUICP)

Denmark

Greece

Sweden

United Kingdom

EU15 (EICP)

Iceland

Norway

EEA (EEAICP)

0.0

-0.1

0.2

0.2

0.0

0.1

0.0

0.0

-0.1

-0.1

-0.1

0.0

0.2

0.2

-0.1

0.2

-0.1

-0.1

0.1

0.1

0.2

0.0

0.2

-0.1

0.0

0.1

0.1

0.1

0.0

0.2

0.0

0.0

48

With the index for January 2001, the coverage of the HICP will be extended a second time.
With a view to the implementation of changes in HICP methodology more generally, the
question of a harmonized revisions policy has been raised by Germany and Sweden. The
discussion on a general revisions policy has already started in the HICP Working Party but
the results are not expected to affect the indices to be published in 2000. This means that the
same inconvenience will appear again, although to a lesser extent, with the annual rates of
change for 2001.

It should be noted that the extension of HICP coverage with the index for January 2000 was
the largest and heaviest HICP operation since the launch of the index in 1997. Despite the
above mentioned concerns, and thanks to the constructive co-operation of all Member States
involved, the operation ran rather smoothly and the results were available on time.

On one hand, the Commission (Eurostat) acknowledges that certain concerns may still
persist, particularly among those Member States which on different grounds opposed the
agreed measures. A conclusive and more in-depth assessment of the operation of the
HFMCE concept, and in particular of measuring changes in ‘income-dependent-prices’ is
not possible earlier than a year after the next wave of extended coverage in January 2001,
i.e. in the year 2003. The Commission (Eurostat) intends to revisit its assessment and report
again in due course.

On the other hand, the Commission (Eurostat) is of the opinion that going through this
difficult consensus-building process was a highly beneficial exercise. The implementation of
these concepts later than initially foreseen delayed the whole harmonization project but it
finally allowed a much more comprehensive coverage for the HICP and helped to narrow
the views on a number of technically difficult and divisive issues on the harmonization
agenda. Nothing would have been achieved without the constructive co-operation of all
parties involved.

6.4.5. Macro index formula (common reference period)

Article 9 of Council Regulation (EC) No 2494/95 requires that
the HICP shall be a
Laspeyres-type index. Though HICPs and CPIs produced by Member States may differ in
detail, they can be broadly described as Laspeyres-type indices. That is, indices in which the
month to month movements in prices are measured as an average of price indices using
expenditure weights which are an appropriate reflection of the pattern of consumption of,
and the structure of prices paid by, the index population in the weight reference period.

In practice, there are three types of base period used in the construction of CPIs: the period
from which the expenditures for weights are obtained (‘weight reference period’); the period
in which base prices are valued (‘price reference period’); and the period in which the index
base is set to 100 (‘index reference period’).

Since HICPs are derived from national CPIs there were, and still are, differences between
national CPIs in all these reference periods. Luxembourg was the first Member State that
had replaced its national CPI with the HICP. With the publication of the January 2000 index
and the related extensions in the coverage, Luxembourg re-introduced a national CPI which
differs in coverage from the Luxemburgish HICP.

49

The HICP is according to the macro-formula chosen for its computation — potentially — a
chain index. It should be stressed that this is the equivalent chain form of the fixed index
which simply allows chained and fixed indices to be expressed by a common formula. The
chaining becomes effective if and only if there would be changes to the weights, for instance
on the grounds of the review as required by the Commission Regulation on the quality of
HICP weightings.

In regard to comparability of HICPs, the choice of the macro-formula in conjunction with
the solutions given to the question of updating HICP weights shall be considered as one of
the major harmonization achievements as the issue of ‘chain’ versus. ‘fixed index’ was
shown to be a non-productive and very divisive issue.

Most Member States compile a fixed base index, while France, Italy, Luxembourg, Austria,
Sweden, the United Kingdom (and Norway) compute a ‘chain index’ with annual weight
updating. In order to obtain a set of HICPs with sub-indices allowing for consistent
aggregations it was necessary to present the HICPs as if they were all computed with the
same formula. Hence, it was necessary to apply a common index reference period and a
common weight reference period. The framework Council Regulation defines the common
index reference period with 1996 = 100. In order to obtain also a common weight reference
period, Eurostat price updates the weights as delivered by Member States to each December.

Table 8 gives an overview of the current situation and the future plans in Member States.

50

Table 8 Weight reference periods

Planned next weight reference period

Weight reference period in
the HICP in Jan-1999

Quantity
reference

Price
reference

Annual updating (‘chain
index’) from … onwards

(X = chain index)

To be
introduced in
…/starting
with the index
for January …

Quantity
reference

Price
reference

B

A

1995-
1996

DK 1994

D

1995

EL

1994

E

F

1990-
1991

1997

B

1995-
1996

1994

1995

1994

1990-
1991

Dec-98

C

1997-
1998

1996

2000

1999

1999-
2000

-

D

Dec-
1999

1996

2000

1999

E

2000

2000

2003

2001

F

-

-

-

-

2000 or
2001

Jan-2001 or
Jan-2002

Jan-2001 or Jan-
2002

-

-

X

IRL 1996

1996

2001

2001

Jan-2002

-

I

L

1997

1995

Dec-98

-

Dec 1998

1996

NL

1995

1995

A

1993/
1994-
1995

P

1995

FIN 1998

S

1998

UK Jul-97-
Jun-98

IS

N

1995

1995-
1997

1996

1997

1998

1998

Jul-97-
Jun-98

1995

1995-
1997

2000

1999/
2000

2000

2000

-

-

2000

1996-
1998

-

Dec
1999

2000

-

X (Jan-1999)

2000

X (Jan-1999)

2003

Not before 2003

2000

2001

X (2000)

Jan-2003

Jan-2004

Jan-2002

-

-

X

X

2002

2003

Jan-2000

X (since Sept-82)

2002

2000

-

-

2000

1996-
1998

51

6.4.6. Elementary aggregates

Commission Regulation (EC) No 1749/96 defines elementary aggregates referring to the
expenditure or consumption covered by the most detailed level of stratification of the HICP
and within which reliable expenditure information is not available for weighting purposes.
An ‘elementary aggregate index’ is a price index for an elementary aggregate comprising
only price data. Compliance Monitoring has shown that most Member States define
‘elementary aggregate’ on a regional level. Prices are collected in all or selected regions.
Regional prices are combined to the lowest level of aggregation within which reliable
expenditure information is available for weighting purposes. After this the indices are
combined to expenditure groups at country level. The ‘elementary aggregate’ level of a
minority of products is defined by the outlet-type.

On the contrary, two Member States define ‘elementary aggregate’ at the product/variety-
level. Prices, which are observed in certain regions and in certain outlet-types, are combined
to the elementary aggregate level. After this those elementary aggregates are combined
directly to the country level.

The ratios of geometric or arithmetic means of prices are the two formulae which should be
used in elementary aggregations. The arithmetic mean of price relatives may be applied in
exceptional cases where it can be shown that it meets the comparability requirement. Table 9
provides up to date information about formulae currently used in the Member States.

52

Table 9

Formulae applied for the computation of the Elementary Aggregates

For the
computation of
the HICP the
formula for EA
was changed

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

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

Estimated effect
on the HICP over
a period of twelve
month (in
percentage
points)

New formula
was/will be
introduced in the
CPI

B

No

RAM

-

-

-

January 1997

-0.3 to -0.4

January 2000

DK January 1997

D

No

GM in
general. RAM
for products
where
substitution is
not possible

RAM
GM for certain
items such as
package
holidays,
books

Jan-95

No estimate
available

EL

Yes

GM

Jan-95

-0.1

No

RAM

-

E

F

Yes,
progressively
for
heterogeneous
products

-

-

-0.1

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

Jan-97: half of
the changes to
the GM were
done; 18% of
the index is
calculated
using GM;
Jan-98, Jan-
99: further
changes to
GM

-

GM

Jan-99

-0.06

53

IRL No

I

Yes

Yes, starting
with index for
Jan-95 (in
Feb-99)

Yes, starting
with index for
Jan-94

Yes

-

-

Yes, starting
with index for
Jan-99

New formula
was/will be
introduced in the
CPI

HICP and
national CPI
are identical

-

GM starting
with Jan 2001

Yes, starting
with index for
Jan-98

Yes, staring
with index for
Jan-98

(cont.)

For the
computation of
the HICP the
formula for EA
was changed

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

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

L

Yes

GM

Jan-95

Estimated effect
on the HICP over
a period of twelve
month
(in percentage
points)

No estimate
available

NL No

A

Yes

P

Yes

FIN Yes

S

No

RAM

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

GM

GM

Variant of GM
(ratio of
standardised
mean prices)

-

Jan-95

-

-0.1

Jan-98

estimate

No
available

Jan-96

-0.1

-

-

-

UK Yes

GM

1988
(backwards
calculation)

IS

Yes

GM

Mar-97

N

No

RAM

GM will be
used from
Aug-99

1997-1999:
-0.5
since then
raised to:
-0.65

No estimate
available

No estimate
available

No

Yes, starting
with index for
Mar-97

Yes, starting
with index for
Aug-99

54

6.4.7. Minimum standards for sampling

HICPs should be constructed from target samples which take into account the weight of
the
each COICOP/HICP category, have sufficient elementary aggregates to represent
diversity of items within the category and sufficient prices within each elementary aggregate
to take account of the variation of price movements in the population shall be deemed
reliable and comparable. Tables 10 and 11 at the end of this section give an overview of the
number of elementary aggregates and the number of price quotations per elementary
aggregate for a number of sub-indices and certain product groups therein in each of the
Member States.

In its last Report the Commission (Eurostat) noted that most Member States did not take
probability samples when observing prices and there was therefore no theoretical framework
for assessing the reliability (bias and precision) of HICPs so constructed. The Regulations
therefore required checks to be made on the adequacy of samples and for adjustment to
practices to be made as necessary.

Purposive sampling may even with a small number of prices and elementary aggregates give
a representative and accurate picture of average price change in a given universe.
Simulations run on scanner data (by Statistics Netherlands) seem to secure this expectation
in a number of cases. This however cannot hold in markets with changing price dynamics or
in the case of other, non-price changes.

A number of markets for consumer goods and notably durables can be assumed as being
fairly similar in Europe. The numbers of elementary aggregates and prices reported by MSs
in the compliance monitoring exercise demonstrate large diversity of actual practice by
reference to weights and the likely diversity of available items and variation of their price
movements. The finding seems to confirm that some HICPs or HICP sub-indices are
equipped with sampling designs which can cope better with unexpected changes in the
diversity of items or in the variation in their price movements than others do. Strong a priori
emphasis on the regional component may, on the other hand, distort the picture given in
Tables 10 and 11 to the extent that regional stratification does not necessarily guarantee
gains in precision and representativity.

It is most unlikely that the markets in different Member States can explain the differences
found in the tables. At best the differences have negligible effect on HICPs but in this case
some Member States may be making a rather inefficient use of resources. Because many
samples are unnecessarily large the potential inadequacy of purposive sampling has been
ignored by Member States. It is also the case that probability sampling, for which there is
established theory, would be expensive. Since there is no actual evidence of bias and no way
of showing bias no objections have been raised. This complacency is hardly acceptable. The
‘comparability criterion’, which requires that different practices between countries should
not per se produce different results, offers a way forward. The task for the Commission
(Eurostat) is to define an efficient and cost effective analysis strategy.

There have been two successive Task Forces (TF) established in order to develop the legal
and conceptual framework for good sampling practice. The first TF looked at the sources of
errors and problems of comparability due to differences in sample design and practice. It
established the key operational differences between Member States and reviewed the few
attempts that had been made to compute sampling errors. On the latter it noted the technical
difficulties of computations but also the potential benefits in terms of improved allocation of

55

the considerable price collection resources used in CPI construction. Otherwise the TF’s
main recommendation was that focus on the problems producing an unbiased measure of
price change in a dynamic economic context, where the range of products available is
continually changing, was the critical issue for harmonization. This led to the remit of the
second TF which was to:

(i)

(ii)

examine the operational issues arising from the requirements of ‘Representativity’
and ‘Precision’ for HICP samples considering both dynamic and static aspects;

develop specific Guidelines for implementing the rules set out in Commission
Regulation (EC) No 1749/96 concerning the various aspects of sampling and
representativity.

This Task Force first sought to develop a theoretical framework for HICP sampling on the
basis of the framework of regulations, which defined the objectives, and the well-established
tenets of sampling theory.

If a precise statement of the index that should be computed for a given and observable
universe can be made then the operational requirements of sample estimates can be
determined. Finally the findings can be used to say how the potential for bias in current
sampling practice might be reduced.

56

Table 10

Number of elementary aggregates on average per month for the 12 most recent subsequent month

Part of
COICOP
code

Heading

01.1.5.

Oils and fats

1) Butter

02.1.3.

Beer

1) Lager beer

Number of elementary aggregates on average per month for the 12 most recent subsequent
months

DK D

EL

ES

F

IRL

I

L NL

A

P FIN S UK IS N

5

2

3

1

102 138

208

17

34

17

23

46

46

52

52

52

218

75

105

105

30

10

20

10

474

79

158

-

5

1

1

1

12

120

1

8

5

20

20

20

7

2

2

2

36

10

6

6

6

2

4

0

48

24

48

24

7

5

4

3

56

16

24

8

03.1.2.

Garments

31

905 255

2 236

2 196 255

2 686

29

98

600

43 228

23 144 37 440

1) Men’s shirts

2) Women’s dresses

03.1.4.

Dry cleaning, repair and hire of
clothing

1) Dry-cleaning of men’s trousers

04.1.

Actual rentals for housing

05.1.1.

Furniture and furnishings

1) Sofas

05.3.1./2. Major household appliances whether

electric or not and small electric
household appliances

1

1

2

1

1

11

1

15

42

42

51

17

119

385

21

9

9

92

23

2

55

1

361 120

52

52

52

52

52

832

52

572

69

59

40

8

192

663

82

15

5

30

5

2

45

5

466 100

79

79

132

79

26

316

79

263

1

1

1

1

2

2

2

1

3 917

6

1

7

32

5

40

20

20

80

20

20

220

20

2

2

2

1

9

9

2

280

20

6

6

6

6

12

66

6

78

1

1

1

0

1

22

2

6

12

24

12

24

36

6

1

3

1

1

1

24

16

40

8

2

6 192

1

16

20 101

7 176

57

(cont.)

DK D

ES

F

IRL

I

L NL

A

P FIN S UK IS N

1) Washing machines

05.6.1

Non-durable household goods

1) Washing powder for washing
machines (no liquids)

07.1.1.

New and second-hand motor cars

1) New cars

09.1.1.

Equipment for reception, recording
and reproduction of sound and
pictures

1) TVs

09.1.2.

Photographic and cinematographic
equipment and optical instruments

1) Video cameras and cam-coders

09.1.3.

Data processing equipment

1) PCs

09.1.5

Games, toys and hobbies, equipment
for sport, camping and open-air
recreation

1) Video-game software

1

15

1

9

9

7

1

2

1

2

1

6

0

EL

12

21

359 599

34

46

69

69

3

3

163

30

19

126

21

92

19

6

47

17

25

1

363 106

52

572

52

104

52

260

52

52

0

104

52

260

54

456

55

192

96

5

85

79

1 396

5

2

1

79

13

13

284

45

184

49

78

21

32

14

10

10

0

6

1

79

53

26

27

1

418

40

474

2

12

1

24

12 108 31 232

12

2

40

6

34

11

20

180

20

2

21

4

6

96

6

55 1 380

29 186

23 180

2

2

1

6

24

14

14

2

900

100

20

60

20

40

20

36

22

8

5

2

11

5

16

1

2

1

2

1

6

12

6

6

6

4

5

2

4

1

48

40

56

16

32

8

32

16

37 34

19 34

1

2

1

1

1

4

4

2

26

24

25

220

10

54

15

3 128

1

2

1

6

5

2

1

1

1

3

1

2

0

1

1

0

30

5

1

0

1

6

3

1

0

8

NB: Data material as supplied by the Ministère des Affaires économiques, Administration de la Politique Commerciale, Service de l'Indice (Belgium), could not be converted in time in

order to be presented in a comparable way to the above data.

58

Table 11

Price observations per elementary aggregate on average per month

Part of
COICOP
code

Heading

Price observations per elementary aggregate on average per month

DK

D EL ES

F

IRL

I

L

NL

A

P

FIN

S

UK IS

01.1.5.

Oils and fats

1) Butter

02.1.3.

Beer

1) Lager beer

03.1.2.

Garments

1) Men’s shirts

2) Women’s dresses

03.1.4.

Dry cleaning, repair and hire of
clothing

87

208

204

203

82

155

105

13

45

71

52

55

26

31

25

26

1) Dry-cleaning of men’s trousers

25

33

2

2

2

2

4

4

4

2

2

5

5

5

5

3

5

3

2

2

6

7

6

6

7

8

11

7

7

26

25

24

22

12

14

14

11

16

11

11

7

5

7

6

3

2

17

20

49

49

9

70

61

66

65

95

17

145

4

19

76

35

6

35

6

6

6

6

7

10

10

4

5

04.1.

Actual rentals for housing

4 200 161

85

32

14

188

137

05.1.1.

Furniture and furnishings

1) Sofas

7

65

17

25

3

8

2

2

7

8

11

13

4

1

33

27

8

1

267

33

29

2

2

59

N

12

13

16

5

3

23

12

54

20

9

12

11

6

1

155

155

27

27

51

29

153

54

104

13

12

12

13

74

115

99

143

82

5

801

84

22

23

52

153

48

50

38

48

47

64

48

50

54

22

24

23

7

7

6

16

22

60

63

40

124

9

5

96

116

18

(cont.)

DK

D EL ES

F

IRL

I

L

NL

A

P

FIN

S

UK IS

N

05.3.1./2. Major household appliances whether

34

13

3

electric or not and small electric
household appliances

1) Washing machines

05.6.1

Non-durable household goods

1) Washing powder for washing
machines (no liquids)

07.1.1.

New and second-hand motor cars

1) New cars

48

13

14

4

4

14

35

68

1

1

09.1.1.

Equipment for reception, recording and
reproduction of sound and pictures

95

15

1) TVs

09.1.2.

Photographic and cinematographic
equipment and optical instruments

1) Video cameras and cam-coders

09.1.3.

Data processing equipment

1) PCs

189

84

28

18

1

16

13

13

12

11

2

2

4

4

4

2

2

8 0.58

8

3

6

3

3

2

8

0.6

2

2

2

2

2

60

6

12

5

23

32

6

48

20

9

18

9

6

5

5

2

2

7

13

5

6

6

9

14

22

24

28

28

12

14

13

16

41

2

6

8

5

5

4

2

3

2

2

4

17

61

23

27

66

58

9

5

9

50

119

136

17

401 0.03

15

44

25

32

13

19

6

1 0.05

36

31

43

38

13

6

7

9

1

1

1

1

5

5

47

49

47

46

47

46

25

19

30

31

30

23

20

23

22

20

20

9

64

36

60

15

11

13

5

3

10

103

11

108

15

84

13

81

8

11

9

1

15

41

83

1

1

9

6

6

7

6

6

3

5

9

7

5

2

3

(cont.)

09.1.5

Games, toys and hobbies, equipment
for sport, camping and open-air
recreation

DK

D EL ES

F

IRL

I

L

NL

A

P

FIN

S

UK IS

N

18

10

3

4

5

8

4

46

59

1

39

21

17

74

12

4

1) Video-game software

0

12

5

10

2

3

26

20

13

120

0

NB: Data material as supplied by the Ministère des Affaires économiques, Administration de la Politique Commerciale, Service de l'Indice (Belgium), could not be converted in time in

order to be presented in a comparable way to the above data.

Comments on Table 11:

One would expect to see at least one price observation per elementary aggregate. For Spain and Austria this assumption does not hold for some sub-
indices. This deviation can be explained by the treatment of centrally observed prices:

(a)

(b)

A centrally observed price is used for the calculation of average prices in each region. This results in a number of elementary aggregates
corresponding to the number of regions in each country. In this case the price is counted as a single price quotation for the whole country. The
ratio between the number of price quotations and the number of elementary aggregates might thus fall below zero as in the cases of Spain and
Austria.

A centrally observed price is used for the calculation of one elementary aggregate which is directly used for the aggregation in each region. Also
in this case the price is counted as a single price quotation for the whole country.

61

The project was informed by a corresponding exercise by Statistics Netherlands where
alternative price indices were constructed for what are in effect almost complete data
for a known, if limited, universe of scanner data. The central problem is how to deal
with non-price change, changes through time in the products available and in the
actual consumer choices. The standard practice in these situations is to say what
should be done if the universe were static. However, since this involves a hypothetical
situation it is difficult to reach a consensus. Hence the diversity of actual practice in
essentially identical situations.

Although the TF made considerable progress in elaborating the issues in new ways a
full resolution of the problems remains intractable. Nevertheless, the proposal will
further extend the minimum standards on sampling to ensure that current HICP
samples do not fail to adequately represent new or current models or varieties of
products on the European markets. The TF will also suggest how scanner data may be
exploited both as a source of prices for inclusion in HICPs (their use is not without
problems) and as a basis for simulating alternative sampling procedures.

There is no room for complacency on the reliability of HICPs. The aim is therefore to
develop quantitative indicators to supplement
the ad hoc qualitative assurances
currently given to users and to demonstrate that all HICPs and the MUICP meet the
required standards.

6.4.8. The level at which macro aggregation changes into elementary aggregation

The Commission (Eurostat) recognises that
the level of elementary aggregation
interacts with other design features such as sampling and availability of weighting
information. As shown in Tables 10 and 11, depending on the sources of weights used,
elementary aggregation may start at higher or lower levels in the product, geographic
and outlet hierarchies. Although it is also recognised that differences as a result of
national practices can in theory affect the resulting HICP differences, the issue was in
the first instance not considered as a priority matter for the harmonization work. It is
the only important item on the harmonization agenda on which no action has been
undertaken up until now. With a view to the ever increasing importance of the HICP
the issue needs to be addressed.

6.4.9. Minimum standards for prices and quality adjustment

‘“Quality change” occurs whenever the Member State judges that a change in
specification has resulted in a significant difference in utility to the consumer between
a new variety or model of a good or service and a good or service previously selected
for pricing in the HICP for which it is substituted. A quality change does not arise
when there is a comprehensive revision of the HICP sample.’. Quality adjustment is
defined as ‘the procedure of making an allowance for a quality change by increasing
or decreasing the observed current or reference prices by a factor or an amount
equivalent to the value of that quality change.’.

The kind of substitution described in the above definition might be called ‘new for old
replacement’ because it deals just with the significant difference ‘between a new
variety or model of a good or service and a good or service previously selected for
pricing in the HICP for which it is substituted’. It has been shown that MSs were not
in position to distinguish between new for old and old for old replacements in the
compilation of their HICPs. This also implies that the incidence of quality changes and

62

the adjustments made is not monitored in accordance with the HICP legal framework.
Nevertheless a few MSs supplied in time the experimental implicit quality indices
requested by Eurostat while others are in process of compilation.
(see also
Section 6.4.11 on implicit quality indices).

In its last Report the Commission (Eurostat) noted that ‘quality adjustment’ was
widely accepted among experts to be one of the most, if not the most, intractable
problems in CPI construction. The HICP minimum standard requires that Member
States did not make the automatic assumption that price differences between
successive models was wholly attributably to quality. Otherwise Member States were
permitted to continue to follow a number of standard procedures, either explicit or
implicit, to adjust for quality change. However, it was accepted that work was needed
to assess the underlying assumptions and validity of each procedure before
comparable practices could be established and applied consistently. The setting up of a
central database of actual adjustments and research into quality change in the most
important areas of product development were seen as a way forward.

The Commission (Eurostat) has engaged with Member States in both general and
conceptual discussions of methods and in the examination of the results of empirical
studies of quality change and adjustment both within Europe and in the wider
International Working Group on Price Indices (the Ottawa Group). The latter forum
allows European experts to examine the ideas and research of the US price statisticians
who have been particularly active following criticisms of the Boskin Commission.
However, little or no progress has been made. Efforts by working groups to produce
Guidelines for the treatment of quality change in either motor vehicles or clothing
were inconclusive.

The Working Party failed to agree proposals for distinguishing products where quality
was assumed to be important from those where it was not despite evidence suggesting
unacceptable wide variations in particular adjustments between countries. Some
a
Member States preferred a
comprehensive solution had been agreed. Others supported a rather more pragmatic
approach to harmonization given the unsatisfactory conclusions on current practices.

cautionary position resisting change before

A number of Member States have explored the use of hedonic regression techniques
for allowing for quality change with mixed results. The availability of scanner data has
facilitated experimental work of a high standard. However,
there is no general
agreement that the approach is practicable on a wide scale and the technique does not
address the problem of allowing for major innovation such as digital TV or Windows
2000. Nevertheless, some countries argue that it can be successfully used to allow for
changes in the quality of clothing when comparing the prices of one season’s clothes
with those of the following season replacements. Such adjustments involve a heavy
burden of data collection and analysis. Work on PCs done in the US and elsewhere has
produced figures of significant quality improvement. Whilst
this accords with
common expectations the results are not without their critics. Ultimately the approach
either rests on the acceptance of purely statistical regularities as consumer valuations
or on untested assumptions about consumer behaviour and about unobservable market
processes in the setting of prices. Notwithstanding these objections, the Commission
(Eurostat) leaves open the possibility of agreeing with Member States that such
methods may be preferable to many of the current practices.

63

However, it seems rather unlikely that further progress can be made before the
sampling TF has formulated clear ideas on the sampling part of the quality change
problem (e.g.: representativity by reference to a changing universe, tight vs. loose
specification of representative items, re-sampling versus replacements).

6.4.10. Quality adjustment database

Article 5 of Commission Regulation (EC) No 1749/96 also states that in the absence of
national estimates [for the quality changes] Member States shall use estimates based
on information provided by the Commission (Eurostat) where these are available and
relevant. In order to meet this requirement Eurostat has launched a pilot quality
adjustment database on an experimental basis. The database was designed following
specifications proposed by Statistics Netherlands which has supplied the first data.
Member States were asked to supply more estimates for individual products with a
view to other priorities. There is slow progress to be noted due to the lack of resources
in both Member States and Eurostat.

6.4.11. Implicit Quality Indices (IQIs)

The IQI is a measure of the effect of operational adjustments that have been made to
the raw price data in order to obtain the price index. That is the aggregate effect of
adjustments to remove non-price effects and arrive at the true price change. Where the
only adjustments to the raw price observations are allowances for quality change the
IQIs provide an index of quality change. The power of the IQI concept is that it can be
subjected to a number of controls that can reveal biases or other problems in HICP
computation. Two basic control questions are:

(a)

(b)

do the IQIs for different items move as expected according to generally
accepted views of what is going on in the consumer markets? Such generally
accepted views may be that, for example, quality for PCs increases faster than
for cars whose quality in turn increases faster than for clothing and meat;

do the IQIs for the same items move similarly in different Member States?
Since markets for consumer products in Europe, especially for durables, are
fairly similar, the true quality change may be expected to be broadly similar.

During the discussions on IQIs the perception of the Member States has changed.
Member States agreed to provide Eurostat with IQIs for some areas on an
experimental basis. So far, Eurostat has received only IQIs from some, but not all,
Member States (and Candidate Countries). These early results already demonstrate the
usefulness of the IQI approach for analysing whether the implied quality changes
appear reasonable for the products concerned, and for giving indications of possible
non-comparability between countries.

When most countries have delivered the experimental IQIs it should be possible to
take this issue forward. At this stage of the IQI project no firm conclusions can be
drawn.

64

6.4.12. Handling of missing observations

In order to ban practices which can lead to serious biases, Member States are asked to
maintain and provide a statement of their target sample from month to month; where
prices are not observed they must be estimated by an appropriate procedure. Article 6
of Commission Regulation (EC) No 1749/96 deals with the minimum standards for
prices. It is said that ‘where the target sample requires monthly observation, but
observation fails due to non-availability of an item or for any other reason, estimated
prices may be used for the first or second month but replacement prices shall be used
from the third month’. In its last Report the Commission (Eurostat) provided a first
insight into the operation of this standard. MSs are in process of supplying additional
information requested by Eurostat on the actual frequency they are observing or
replacing prices and the procedures used for estimating missing observations. The
HICP standard may be said that it leaves the following questions to be answered: What
limit
are ‘non-appropriate estimates’ for missing (non-observed prices) and what
to ensure
should be set on the number of estimates used (missing prices)
comparability? Both questions are discussed within the framework of sampling and
quality change (see page 59 and following). At this stage no conclusion can be drawn.

6.4.13. Seasonal items

The treatment of seasonal items in the HICP was in the first instance not considered as
a priority matter for the harmonization work, to the extent that differences in national
practices should in theory not affect the measured rates of change in the resulting
HICPs. Because of a strong interaction with sampling and the treatment of quality
changes and with a view to the ever increasing importance of the HICP, Eurostat
believes that the issue needs to be addressed expressly. In the same context, several
members of the HICP Working Party have pointed out significant differences in the
frequency of price collection among Member States and their potential impact on the
comparability of HICPs. However, it is on the grounds of yet missing empirical
evidence that Eurostat has not considered it as a priority issue for harmonization work.
A small-scale study has been commissioned within the framework of the HICP WP.
Results are expected in 2001.

6.4.14. Price measurement and processing

a)

Tariff prices

Member States have provided information on the operation of the Regulation on
tariffs. Ten of the responding Member States reported no changes in their calculation
methods because they already were compliant with the Regulation. One of those
Member States reported that it is planning to further improve its sample for tariff
prices. One Member State
the
in the
telecommunication index in order to comply with the standard.

calculation of

reported a

change

In general, Member States considered the Regulation on tariff prices as particularly
helpful because it provided a clear legal basis for collecting information from suppliers
on their tariff prices and structure. This increased the accuracy of their HICPs.

65

b)

Price reductions

Guidelines on the inclusion of sales prices (price reductions more generally) the HICP
were put in place in 1997. These Guidelines have been implemented in most, but not
in all, Member States. Luxembourg has entered sales prices into its index in
January 1999. As yet, the indices for Belgium, Germany, Spain, and Italy do not show
the expected seasonal pattern. Belgium and Spain are currently collecting sales prices
with a view to implementing the Guidelines in 2001 and will at the same time revise
the 2000 data.

The cases for Germany and Italy are slightly different. Germany supports in principle
the Guidelines but the price collection period in Germany (around the 15th of each
month) does not coincide with the legally regulated sales periods. Italy does not
support the idea to cover sales prices in the HICP. The Italian position can be
considered as a policy of the Italian Statistical Office.

When Luxembourg first included reduced prices in its HICP in January 1999, the
annual rate of change was significantly influenced because of winter sales in January.
This phenomenon appeared again in July 1999 with the summer sales. In reaction to
this, the HICP WP agreed to revise index series appropriately for a period of twelve
months before the actual date of first entering reduced prices into the HICP if the
current annual rates are influenced by more than one-tenth of one percentage point.

Given that the Guidelines on price reductions have failed, a new Regulation has been
put to the SPC. The new Regulation is expected to enter into force in December 2000
and take effect with the index for January 2001 or January 2002.

c)

Timing of entering purchaser prices into the HICP

There is considerable scope for procedural differences between Member States in the
timing of entering purchaser prices into the HICP. The effects of these differences are
time
especially visible in the treatment of products where there is a significant
difference between the time of purchase, payment, or delivery and the time of
consumption.

A Regulation is being prepared that aims at harmonizing current practices and
improving the comparability and the relevance of the HICP. The interpretation of
index changes in the affected sub-indices will be facilitated.

The draft Regulation has used the European System of Accounts 1995 (ESA 95) as
conceptual source and is consistent with the ESA 95 definitions in as so far as they are
consistent with the purposes of the HICP. In particular, ESA 95 states that goods and
services should in general be recorded when the payables are created, that is, when the
purchaser incurs a liability to the seller. This implies for the purposes of the HICP that
prices for goods shall be entered into the HICP for the month in which they are
observed and that prices for services shall be entered into the HICP for the month in
which the consumption of the service at the observed prices can commence. The
application of
the draft Regulation is explained by examples in an attached
explanatory note.

The provisions of this draft Regulation are proposed to be implemented by Member
States in December 2000 and take effect with the index for January 2001.

66

d)

Revisions policy

As mentioned in Section 5.8.1, the Guidelines on revisions are currently under
discussion. In view of the important number of consecutive methodological changes in
the compilation of the HICP, which mainly result from the complexity and the
importance of the issues to be dealt with, the stage-approach to harmonization, the
length of the harmonization process itself and the fact that agreed sets of rules were in
some cases not followed by all Member States, there is large consensus at the HICP
WP that existing rules need to be completed and converted into a binding Commission
Regulation. Such a Regulation is planned for 2001.

6.5. Coherence

6.5.1. Classification

The Classification Of Individual COnsumption by Purpose adapted to the needs of the
HICPs (COICOP/HICP)9 is based on the final version of the COICOP classification as
of October 1998, established by the OECD after consultation with Eurostat, UNSD
and the national statistical agencies of its Member countries. The COICOP provides a
world-wide classification common across several statistical domains such as HICPs,
CPIs, Purchasing Power Parities, Household Budget Surveys and National Accounts.
The extension to HICP coverage from the index for January 2000 offered an excellent
opportunity to bring COICOP/HICP up to date with the latest version of the standard
COICOP. COICOP/HICP is however a self-containing derivative established by EU
law and it cannot be assumed that COICOP/HICP will be automatically up dated for
any future revision of COICOP.
the
classification usually affect sub-indices and index weights. To the extent that sub-
indices are regrouped or re-defined such revisions require costly revisions in historic
data.

It should be stressed that

revisions of

6.5.2. Coherent definitions with the National Accounts (NA)

The concept of HFMCE not only specified the coverage, the prices and the weights for
the HICP, it established moreover a coherent link between HICPs and ESA 95 that is
most useful to analysts and policy makers inside and outside the EU.

This also implies that derivative HICP definitions follow ESA 95 in as far as the latter
are consistent with the purposes of the HICP.

The most important departures from ESA 95 definitions are the following:

–

–

9

the HICP covers only the part of HFCE that
to inflation
financial
measurement. That
transactions, i.e.: HFMCE. Imputed expenditure, in particular imputed rents
for the cost of the service provided by owner-occupied shelters are thus
excluded from the HICP.

is only the part which involves actual

is relevant

HICP coverage excludes on various grounds,
gambling, prostitution, and financial
measured (FISIM).

intermediation services

life insurance, narcotics,
indirectly

See Commission Regulation (EC) No 1749/1999 (OJ L 214, 13.8.1999, p. 1).

67

–

Both in HICPs and ESA 95 volumes are generally valued at purchaser prices
following the acquisition principle. However, expenditure on services in
ESA 95 is recorded when the delivery of the service is completed, whilst
service prices are recorded in the HICP in the month for which consumption
at the observed prices can commence. It should be stressed that each month in
a Laspeyres-type price index the base or reference period basket is valued at
current month’s prices.

6.6. Timeliness and punctuality

The MUICP is a key statistic for informing monetary policy in the euro-zone and is
widely used by policy makers, economic and financial analysts. Timeliness in the
publication of the HICPs has been ever since the launch of the first HICPs a key issue
for the HICP WP aiming at reducing release deadlines towards 15 calendar days after
the end of the reference month. The deadline for releasing monthly data was initially
set by the framework Regulation to an average of about 36 calendar days from the end
of the reference month.

Already in 1998, the Member States agreed to reduce the deadline for the monthly
data transmissions to Eurostat from 30 to 25 days. At he same time Eurostat agreed to
reduce its release deadline from five to four working days. These reduction were
gradually implemented during the first half of 1998.

The Council of the EU endorsed on 18 January 1999 a Report from the Economic and
Financial Committee on statistical requirements in stage three of the EMU. This
Report drew particular attention to timeliness in publication of statistical data for the
euro-zone at pre-determined release dates.

For the first half of 1999, release deadlines were reduced to between the 19th and 22nd
and for the second half of the year they were further reduced to between the 16th and
the 18th after the end of the reference month.

For the year 2000, the transmission deadline of the HICP has been set between the 13th
and 15th day after the end of the reference month. For the same period, Eurostat agreed
to reduce its publication deadline from five to two working days. Thereby allowance
was made in January and February 2000 for the so-called ‘millennium bug’, the
standard weights updating exercise and the implementation of extended coverage with
index for January 2000.

Apart these exceptions, this results in a publication schedule for the year 2000 with
releases between the 17th and 19th day after the end of the reference month. In
comparison, the US CPI is published between the 16th and 19th of the month for the
same period.

With the index for April 1998 and for the first time at Eurostat, HICP release dates are
announced three months in advance. Announced dates are regularly met. The
impressive increase in timeliness is based on negotiated agreement and is the result of
collaborative efforts by Eurostat and national statistical institutes. It should be noted
that nothing could have been achieved without conscientious discipline of all parties
involved.

68

The deadlines set for 2000 and 2001 are fairly close to what can be achieved without
harmonizing the price collection periods in MSs. Based on the experience gained in
the past three years, the transmission and release dates for the years to come should,
subject to agreement by the HICP WP, be aiming at the following:

–

–

–

The transmission deadline for the December index is set to the first Eurostat
working day following the 17th of January and the publication date two
Eurostat working days later.

For the January index, the publication date is set to be the last Eurostat
working day in February and transmission deadline is set to be the fourth
working day prior to publication date (thus the January index is published on
the last working day of February).

The transmission deadlines for all other months are defined as the first
Eurostat working day following the 13th and the publication date as being
two Eurostat working days later.

In order to meet deadlines, a number of Member States transmit provisional data to
Eurostat. It is suggested that this practice should continue to the extent that it does not
impact on the MUICP. Final national data should be published together with the index
for the following month.

In case of missing data (i.e. a MS has missed a deadline), Eurostat is publishing
estimates for EMU, EU and EEA aggregates. Estimates for individual MS are not
published as such.

In the longer term, Member States (and Eurostat) should work towards reducing
provisional data in the monthly releases, and providing reliable estimates one to two
days before the release dates.

6.7. Accessibility and clarity

The MUICP, the EICP, the EEAICP and the HICPs are released simultaneously to all
interested parties at noon (CET) on the pre-announced date and are posted on
Eurostat’s website.

Consumer price index data are disseminated through Eurostat's database NewCronos
(Theme 2 — Domain ‘Price’ — http://europa.eu.int/comm/eurostat). Following data
are available: harmonized monthly, annual and annual average indices and inflation
rates for the EMU,
the EEA and each of their Member States, by
COICOP/HICP categories together with the corresponding weights. HICPs on
NewCronos are documented by means of meta-data following the IMF Special Data
Dissemination Standard (SDDS).

the EU,

Some monthly and annual series are also published in the monthly HICP ‘News
Release’ and the monthly ‘Statistics in Focus — Economy and Finance — Theme 2’,
which latter includes annual inflation rates at two-digit COICOP/HICP level.

Furthermore, the euro-indicators site on Eurostat’s website contains topical rates of
change.

69

To a large extent HICPs are compiled on the basis of legislated methodology. HICP
legal acts offer an excellent though particularly dense documentation of harmonized
standards and arguments underpinning them.

In addition, the legal acts listed in annex I to this Report are published in the ‘Official
Journal of the European Communities’ (in order to receive more information, please
contact Celex@opoce.cec.be).

Technical notes on HICPs have been published in Eurostat News Releases and
Memos:

–

–

–

Eurostat News Release 21/97 of 5 March 1997, ‘Harmonizing the way EU
measures inflation’.

Eurostat Memo 8/98, 4 May 1998, ‘New Monetary Union Index of Consumer
prices (MUICP)’.

Eurostat Memo 2/2000 of 18 February 2000, ‘Extended Coverage and Earlier
Release Dates for the HICP’.

Further details can be obtained from the first ‘Commission Report to the Council on
the harmonization of consumer price indices’, COM(1998) 104 final, catalogue
number CB-CO-98-133-EN-C. The Report
is available in the 11 EU languages
through the Eurostat Data Shop network or the Commission’s sales agents. The full set
of HICP legal acts is listed in Annex I to this Report.

Information on rounding rules and computation formulae for European HICP
aggregates can be made available on request through the Eurostat Data Shop network.

Some Member States have published manuals on their CPIs or HICPs which give an
overview of the methods used in these countries. So far, Eurostat is aware of the
following manuals published after the start of the harmonization project in 1993:

Finland:

France:

‘The consumer price index 1995=100, Handbook for Users’, Statistics
Finland, October 1998.

‘Pour comprendre l’indice des prix’, Institut national de la statistique et
des études économique (INSEE), edition 1998.

United Kingdom:

‘The Retail Prices Index, Technical Manual’, Office for

National Statistics (ONS), 1998.

Spain:

Norway:

Greece:

‘Indice de Precios de Consumo. Base 1992. Metodología.’, Instituto
Nacional de Estadística, Madrid, January 1994.

‘Konsumprisindeksen (The Consumer Price Index). Rapporter 91/8.’,
Statistics Norway, 1991.

‘“Revised Consumer Price Index”, Base Year 1994=100,0’, Statistics
Greece, 1998.

70

Belgium:

‘L'Indice des Prix à la Consommation, Base 1996’, Ministère des
Affaires Économiques, Administration de la Politique commerciale,
Service de l'Indice, Dépôt légal: D/1999/2295/20.

7. QUALITY ASSURANCE IN THE HICP

7.1. Compliance Monitoring

A guiding principle in the Compliance Monitoring strategy has been to fit quality
control and quality assurance into a broader context of total quality of the HICP.

The harmonisation work could well be described as a continuing process of gradual
HICP quality improvements. The objective of the legal and other requirements that
have been laid down during this process is not to provide comprehensive instructions
for the calculation of an HICP. Instead, the objective has been to establish common
rules for dealing with those areas of CPI construction that most significantly have
contributed to the non-comparability of the national CPIs. For other areas, HICPs are
still based on national CPI practices.

The main ingredients of the organisation of Eurostat’s compliance monitoring may be
seen as a cyclic process of continuing improvement:

–

–

–

–

–

–

Identify key quality targets on the basis of existing legal rules, agreements,
user requirements and CPI quality standards in the Member State concerned
(initial plan);

Review of requirements and monitoring of compliance (action to test the
initial plan);

Evaluation of compliance and performance (reflection on what more needs to
be done);

Co-operative
(conclusion on what should be done);

development

of

improved methodology

and

practice

Identify new or improved quality targets on the basis of new developments of
the situation concerning legal rules, agreements and user requirements (new
plan based on user and producer feed-back);

Further monitoring (repeat the cycle).

Corrective actions following this approach can be of two kinds: firstly, corrective
actions for deviations from existing and already fully specified standards and
secondly, corrective actions that will necessitate development and implementation of
further standards and, very likely, of further legislation.

Cost effectiveness of the monitoring process will be of paramount importance and
every effort will be made to minimise the burden on NSIs. A sequential procedure is
envisaged, where detailed checks are made only when initial checks indicate that there
is a cause for concern. The quality of the indices and the process of harmonisation are
further advanced by using well targeted statistical quality control data and research

71

findings, measures of performance and NSI investigation under Eurostat’s auspices, to
establish potential sources of bias or non-comparability and ways of eliminating these.

Eurostat has run two rounds of compliance assessments. A first assessment was based
mainly on the information provided for the first Report to the Council. A second,
follow up assessment took place towards the end of 1998. Two pilot compliance visits
were carried out in 1998. Furthermore, Eurostat initiated checks on Member States’
compliance and to assess it in this Report by sending a ‘Compliance Monitoring
Questionnaire’ (CMQ) to the Member States in 1999.

Where the initial checks that can be done with the data available from the
questionnaire indicate that there is a cause of concern, this will be followed up
the current minimum
bilaterally. In some cases it became already apparent
standard was not sufficient as it could be interpreted in different, possibly not
comparable ways, e.g. the minimum standard on newly significant goods and services.
The wording of such minimum standard will be re-considered and improved.

that

In May 1999 within its ‘Qualistat’ initiative, Eurostat submitted for formal opinion to
the SPC an outline to a strategy for compliance monitoring in a total quality
the
perspective (TQM). Eurostat endorsed that
envisaged total quality perspective would need to be co-ordinated with existing CPI
Quality Assurance elements, as applied in Member States. The Members of the SPC
were invited to indicate their interest in securing that the CPI/HICP quality work at
national level would be brought in line with the total quality approach as presented in
the strategy outline.

in order to become operational

The SPC recognised the importance of quality assurance in the HICP; several
delegations expressed their concerns about the resource implications of the TQM-type
approach. It was concluded that the HICP Working Party should discuss how to
further implement the quality strategy in a step by step approach. The Working Party
should give special emphasis to the points raised in discussion, such as the need for
comparable documentation standards, an increase in the coverage, current practices in
national quality work, cost-effectiveness, burden on the NSIs. The Working Party was
also asked to discuss alternative proposals to ensure the quality of the HICP.

Although compliance monitoring remains high on the list of HICP priorities, and
significant resources have been invested in the control of the quality of the HICPs,
emerging priorities in conjunction with resource limitation at Eurostat and the NSIs
are slowing down progress in implementing formal quality assurance standards. It
should be noted that Eurostat was not in a position to submit to the SPC as foreseen an
update of the proposal in its May 2000 meeting.

7.2. Advisory body

In spring 1999, Eurostat proposed to the SPC to establish an Advisory body on HICPs.
This approach followed the common national practice where National Advisory
Committees usually oversee national CPIs. Those national committees might differ
between member States, a common ambition seemed nevertheless to be to promote
transparency and independence.

72

The main objective was to ensure integrity and public acceptance of the harmonised
indices in the context of the ESCB’s/ECB’s management of the monetary policy for
the euro-zone. The proposed strategy was an active one (i.e. an independent body to be
appointed to advise Eurostat
in matters related to the harmonised indices). In
Eurostat’s view, special efforts could be made to increase transparency. The advisory
body could help to secure the general acceptance and credibility of the HICPs.

Most members of the SPC agreed that the unique importance of the EMU necessitated
a strategy to ensure a high degree of integrity and public acceptance of the harmonised
indices. Nevertheless, different opinions existed on how to achieve those aims in the
best way. There was only little support for the Advisory body proposal. It was argued
that such a body might result not only in duplication of work but also in conflicting
opinions in relation to the existing institutional structure. Any such conflicts could
have a negative effect on the credibility of the harmonised indices.

The majority of the SPC was in favour of strengthening and confirming the credibility
of the HICP by combined approaches. The following options were mentioned: the
strengthening of existing bodies like the HICP Working Party, involvement of the
European Advisory Committee on Statistical Information in the Economic and Social
Spheres (CEIES), improving transparency by production of meta-data, the drafting of
a manual, the creation of a website and the organisation of special seminars and
conferences.

Following a request by the SPC, the CEIES formed a study group to explore ways in
which the CEIES might be able to assist Eurostat in this matter. The recommendations
of the study group will be put to the CEIES meeting due in September 2000.

8. ENLARGEMENT OF THE EU

8.1. Introduction

Under the procedure of the ‘acquis communautaire’ Candidate Countries (CCs) are —
on entering EU membership — required to compile and release monthly HICPs in
accordance with the set standards.

The process of harmonizing CPIs in CCs was started in autumn 1997 when it became
clear that for the preparing of enlargement negotiations required comparable data for
CCs. Since the beginning of 1998 CCs have been regularly attending the HICP
Working Party meetings as observers, and the special back to back meetings put in
place by Eurostat to discuss specific issues referring to implementation of HICPs in
CCs.

Eurostat has sent two detailed questionnaires to CCs in 1997 and 1998 to assess how
close the applied methods and practices were to the HICP standards. On the basis of
the
the resulting inventory detailed work programmes were developed for
implementation of the HICP standards in each CC.

8.2. Implementation strategy

The approach taken in view to harmonizing consumer price indices in CCs was
inspired by the harmonization project in the EU. It goes through the following four
stages.

73

Stage 1:

Stage 2:

In the period between January and December 1999 CCs have been
to the interim indices
compiling so-called proxy-HICPs, similar
published in EU before the launch of the HICPs. These are mainly
national CPIs corrected to the extent possible for differences in
coverage. The COICOP/HICP main headings are applied as closely as
possible. These indices are more comparable than national CPIs and are
disseminated through Eurostat’s database NewCronos.

CCs agreed to start compiling with the index for January 2000 interim
HICPs based on initial HICP coverage and the corresponding set of
HICP standards. The aim is that these indices will be comparable to the
HICPs compiled by MSs up to the extension of coverage in
December 1999. All CCs are supplying interim HICPs on schedule with
the index from January 2000. Also these indices are disseminated
through Eurostat’s database NewCronos. The aim of the operation
however is not to achieve strict comparability from the very beginning
but gradual improvement with appropriate allowance for variable speed.

Stage 3:

Stage 4:

From December 2000 and with the index for January 2001 CCs have
agreed to extend the coverage of their interim HICPs and implement the
corresponding set of HICP standards as implemented by MSs in
December 2000.

From January 2002 CCs should be compiling HICPs comparable to
those in the EU and be in a position to keep step with further HICP
developments.

It should be acknowledged that despite all problems and difficulties CCs have made
substantial efforts to implement HICP standards and have already achieved by far
more than could have been initially expected. The back to back meeting with CCs
following the standard HICP WP meetings has been shown to be efficient and
effective for the purposes of harmonizing inflation measurement in CCs. Eurostat is
grateful for the smooth, collaborative and open-minded working atmosphere.

8.3. Phare project

8.3.1. Pilot project on price statistics

Within the Phare framework programme, a multi-country project on price statistics
was established (as in other fields of statistics) in order to provide financial support
and technical assistance for the implementation of HICP in those CCs which are
covered by the Phare programme (Bulgaria, Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia). There is no financial
support for Cyprus, Malta and Turkey under the Phare pilot project.

The Pilot Project is devoted to a variety of different means for delivering technical
know-how:

–

–

Technical assistance missions of EU price experts

Attendance at HICP working parties and the special back to back meetings
for CCs

74

–

Organisation of workshops and seminars on specific HICP topics.

Various actions planned within the Pilot Project have already been achieved since its
start in November 1998. The first round of technical assistance missions to CCs took
place during 1999 where individual working schedules for the implementation of
HICP were agreed with each CC. Since November 1999 four price statistics experts
have been advising CCs on practical implementation issues and adapting the bilateral
co-operation agreements with CCs.

Furthermore, under the Phare pilot project on price statistics, workshops are organised
in 2000 and 2001. These workshops are aim at improving contacts between Eurostat
and the CCs as well as on practical familiarisation with methods of implementing
particular methodological approaches for compilation purposes.

8.3.2. Training programme

Under the Phare training programme, secondments of CC staff to the EU of
5.5 months are financed in order to familiarise CC staff with the HICP-related work of
Eurostat. Statisticians from the CCs can gain better knowledge about formulating
detailed methodological rules and the procedures for creating legislative forms to be
executed in the future by MSs. Secondments of price statisticians from Romania, the
Czech Republic, the Slovak Republic, Poland and Hungary to Eurostat have already
taken place and further secondments are planned.

Such secondments for statisticians from the CCs are also possible to MSs’ Statistical
Offices, where CC staff can gain practical knowledge on how methodological rules
laid down under particular legal acts is applied in the Member States. One such
secondment (from Latvia to Finland) has already occurred.

9. OPERATION OF THE REGULATORY COMMITTEE

The comitology procedure to be followed for adopting implementing measures for the
HICPs laid down by the framework Council Regulation was described in the first
Report by the Commission to the EU Council. In the period covered by this second
Report
the Commission (Eurostat) in three cases needed to refer implementing
measures to the Council because the SPC had not delivered an opinion on the
Commission proposals. The Council acted in all three cases within the period of three
months foreseen by the procedure and adopted with the agreement of the Commission
the following implementing measures in amended form:

–

–

–

Council Regulation (EC) No 1687/98 of 20 July 1998 amending Commission
Regulation (EC) No 1749/96 concerning the coverage of goods and services
in the HICP,

Council Regulation (EC) No 1688/98 of 20 July 1998 amending Commission
Regulation (EC) No 1749/96 concerning the geographic and population
coverage of the HICP,

Council Regulation (EC) No 2166/1999 of 8 October 1999 laying down
detailed rules as regards minimum standards for the treatment of products in
the health, education and social protection sectors in the HICP.

75

The above resulted in significant delays in respect
the
implementation of the measures concerned and the overall harmonization project on
the one hand but to wider consensus and better understanding of technically difficult
issues, essential to the solid foundation of the HICP, on the other. All in all the
procedure proved to be effective thanks to the co-operation of all parties involved and
the support of the main users, notably the Economic and Financial Affairs Directorate-
General and the ECB.

to the timetable for

On 28 June 1999, the Council adopted Decision 1999/468/EC laying down the
procedures for the exercise of implementing powers conferred on the Commission10,
better known as the ‘Comitology Decision’, which replaces old Council Decision
87/373/EEC. The new ‘Comitology Decision’ has reduced the number of possible
procedures to be used from five (I, IIa, IIb, IIIa, IIIb) to three (advisory, management,
regulatory). Current procedure IIIa is turned into the new regulatory procedure.
However, as long as the Council will not
take a formal decision adapting the
procedural provisions of pre-existing legal acts not yet modified, currrent procedure
IIIa will continue to apply. The Commission is already preparing a proposal to be put
before the Council to this end.

the new regulatory procedure will not change
Compared to old procedure IIIa,
anything as far as the intended measures are not submitted to the Council, due to the
absence of opinion or the negative opinion delivered by the committee.

If the said measures must be submitted to the Council, the main change is that, in
addition to the options it had under procedure IIIa, the Council may now simply
oppose the proposal by qualified majority, in which case the Commission shall re-
examine its proposal with a view to either:

–

–

–

submitting an amended proposal to the Council ;

re-submitting its proposal to the Council;

preparing a legislative proposal according to the Treaty (normal co-decision
procedure, in the case of statistics).

So far, as it is not yet applicable in the domain of HICPs, no experience has been made
with this new procedure.

10

OJ L 184, 17.7.1999, p. 1.

76

10. REACTIONS FROM THE USERS AND THE MEDIA

10.1. Opinion of the European Central Bank

As a key user, the ECB (and its predecessor, the EMI) has been closely involved in the
preparatory and development work of the HICPs through the consultation procedures
laid down in Article 5(3) of the Council Regulation on HICPs and through the
participation of ECB/EMI technical experts in Eurostat's Working Party.

Against the background of the differing objectives, concepts and methods underlying
the national CPIs, the ECB regards the harmonisation efforts as essential for the
assessment of price stability in the euro area, the achievement of which is its main
task. The Governing Council of the ECB has defined price stability as a year-on-year
increase in the HICP for the euro area of below 2% over the medium term. Therefore,
the HICP has been a key indicator for the single monetary policy strategy of the
Eurosystem since the start of Stage Three of Monetary Union.

In addition, the HICP continues to play an important role for the assessment of
in
convergence towards price stability in the non-euro area EU Member States,
accordance with the Treaty on European Union.

The harmonisation so far achieved appears in general satisfactory. The common
coverage and classification as well as the detailed publication of sub-indices are an
important achievement for analytical purposes. A comparable basic formula has been
established and first measures
introduced to improve the comparability of
methodological issues (approaches concerning quality adjustment and sampling). In
the last two years four regulations concerning the harmonisation of the geographic and
population coverage and the extension of the product coverage of the HICP have been
approved and implemented, improving not only the comparability between countries,
but also the coverage of the household consumption expenditure in the HICP. The lack
of backdata compiled on the revised coverage for at least a 12-month period, as
requested in the Opinion of the ECB on the draft regulation, is however, a drawback
for the analysis of the results during the year 2000. At the same time, the use of the
MUICP for the purposes of monetary policy analysis has increased the importance of
the timeliness of the data which, as a response to this requirement, has recently been
further improved.

the treatment of the difficult

ECB closely follows the further harmonization and improvement of the HICP. In this
respect
item of owner-occupied housing and the
improvement of the minimum standards for quality adjustment procedures are very
important. Many of the issues discussed in the context of the HICP work improve
comparability and reliability of the measurement of inflation and are therefore
particularly welcome.

Finally, the ECB appreciates the efforts to develop harmonized consumer price indices
for the pre-accession countries, which will facilitate the analysis of inflation in these
countries and their comparison with the euro area.

77

10.2. Opinion of the Economic and Financial Affairs Directorate-General of the
European Commission

The Economic and Financial Affairs Directorate-General welcomes the further
improvements which have been made to the timeliness and quality of the HICPs since
the 1998 Commission Report to the Council on the Harmonisation of Consumer Price
Indices in the EU. The Economic and Financial Affairs Directorate-General is of the
opinion that the HICPs provide high-quality, reliable and comparable measures of
inflation which are well suited to the purposes for which they are used, notably the
assessment of sustainable convergence in inflation of non-euro-zone EU Member
States, for the conduct of the ECB’s monetary policy, and for the monitoring and
assessment of inflation developments in the EU Member States for the purposes of
economic policy co-ordination. Even so, further improvements to the HICPs are
desirable and Economic and Financial Affairs Directorate Genaral encourages
Eurostat and the HICP Working Group to pursue vigorously their efforts in this area.

As for timeliness, the publication schedule for 2000 foresees publication of the indices
for a given month on the 17th to 19th day of the subsequent month (except for the
months of December and January due to the annual change of weights). This
performance represents a significant improvement and it is similar to that of other
large currency areas, notably the United States where publication occurs on the 16th to
19th day of the subsequent month. Even so, further shortening of the publication lag
seems desirable and feasible, and Economic and Financial Affairs Directorate-General
encourages Eurostat and the Member States to work in this direction.

to comparability across countries and the quality of

With respect
inflation
measurement, basic progress was achieved already by the time of the 1998 Report to
the Council, notably with respect to the harmonisation of coverage, the establishment
of a comparable basic formula and first measures to improve comparability of methods
for quality adjustment, sampling, weight updating etc. Subsequently, progress was
made with the regulations extending the product coverage to include additional goods
and services (health, education and social protection items, more insurance services,
etc.) and the harmonisation of the population and the geographical coverage. As a
result, the HICPs cover virtually 100% of household final monetary consumption
expenditure (not including expenditure on owner-occupied housing).

The construction of the HICPs has followed a principle of ‘best practice’ and in most
respects the HICPs are of equal or superior quality to the national CPIs. For instance,
the choice of basic formula has minimised the potential upward bias in inflation
measurement due to so-called ‘formula bias’, and there are minimum standards for the
frequency of weight updating. However, further progress is desirable. In particular,
owner-occupied housing represents a sizeable fraction of consumer expenditure which
should be included in the HICPs, and more work is needed to improve the
methodologies used for assessing changes in product quality. Furthermore, it would
seem desirable if more Member States would shift to annual updating of the item
weights, as this would reduce potential upward biases in inflation measurement.

Economic and Financial Affairs Directorate-General recognises that revisions of
historical data should remain possible if and when new and superior information
becomes available or there are methodological changes. However, it would seem
desirable that updating of item weights follows a pre-announced schedule and that
they should generally occur at the beginning of the year rather than during a year. In

78

connection with future methodological improvements to the HICP, information should
be made available which will allow an assessment of the implications for the measured
inflation rate.

10.3. HICP in the press

HICPs are released each month at pre-announced dates by the Commission (Eurostat)
in a monthly press release — in English, French and German. Eurostat needs to be
particularly strict concerning, both the embargoing of the data and the exact timing of
the data release.

The normal production of the MUICP and EICP at Eurostat has a tight schedule over
two working days. It consists of the following phases (hours are given in CET):

(a)

(b)

(c)

(d)

(e)

The initial processing and validation is done within the HICP section in
Eurostat.

In the morning, the day before the release, the all-items index and the
12 COICOP/HICP main headings are sent
to Member States for
validation. It is only those data which are not under embargo that are
copied to all Member States.

The day before the release, Eurostat's Press Office receives a first draft
of the HICP press release in English. The exact time depends on the
number of problems encountered in the production environment. Based
on this version it produces the French and German drafts. All three are
finalised by Eurostat's Press Office together with the HICP section in
the late afternoon or early evening. The final press release is sent by
Eurostat’s press office in three languages to the Cabinet of the
Commissioner for Economic and Monetary Affairs and his Spokesman
around 19:00.

Early in the morning of the release day, the all-items index and the
12 COICOP/HICP main headings for the MUICP, EICP, EEAICP, and
all Member States are sent by the HICP section to the National
Statistical Institutes of the Member States via e-mail, normally before
9:00. Furthermore, a specific data file is prepared for the ECB which is
sent
the General Economics Statistics
Division at the ECB at 10:00 and remains under strict embargo until
12:00 when Eurostat publishes the data.

to the person responsible at

Eurostat’s press office sends the press release to the press offices of the
National Statistical Institutes of the Member States between 9:00 and
10:00. The press release is printed on paper by Eurostat in Brussels
between 9:00 and 10:00 in order to be ready for journalists. Finally, the
press release is made available to a limited number of press agencies at
11:00 under strict embargo conditions. The agencies may use this to
prepare their articles for dissemination at 12:00. The press release is
distributed at 12:00 to the journalists present at the daily Commission
briefing. At the same time Eurostat disseminates it to the journalists
registered on its own list.

79

(f)

At 12:00 the main indicators are released on the Eurostat website.
NewCronos is updated around 13:00 with all detailed data.

It is evident that the tight production schedule of the MUICP and EICP has the
positive effect that only a limited number of people have access to the embargoed data
before the publication date. On the other hand it
is important that all National
Statistical Institutes are informed about the results in the morning of the Eurostat
release because several make use of those data in their national press releases.

The ever increasing importance of the HICP and the MUICP is particular is also
reflected in the media, with the HICP leading the list of the most quoted euro-zone
indicators. At the time of the HICP release large number of visitors are registered at
Eurostat’s Internet site.

The extension to HICP coverage which took mostly place with the index for
January 2000 was a major step forward in terms of reliability and relevance of the
HICPs. Coverage together with timeliness and the treatment of owner-occupied
housing have been the most frequent grounds in the media for criticism of the HICP.
As a result of extended coverage and improved timeliness its intrinsic quality has been
henceforth widely recognised in the media and it is hoped that appreciation will grow
even further.

11. COSTS

€

€

Further to the 3.670.000,-
that had been allocated to Member States in the period
covered in the first Report, Commission Decision (C(1999) 4428) allocated additional
for additional costs arising from the
675.000,-
implementation of the extended coverage and the change in the COCICOP/HICP
classification. This amount should be spent until the end of the second year of
implementation, that is until the end of the year 2001.

to MSs in order to account

Although the Commission (Eurostat) took greatest account of cost-effectiveness and
made full use of all possible budgetary resources to finance the HICP project, the
funding might not have covered two-thirds of the actual additional costs to MSs as
required in Article 13 of the framework HICP Regulation.

It should also be noted that future implementation measures, notably on quality
adjustment, sampling and owner-occupied housing might require substantial resources
to be made available for the harmonization project.

12. OUTLOOK

12.1. Future work with Member States

Eurostat believes that in its work with Member States on developing the HICPs, most
of major causes of bias and non-comparability have been identified and are being dealt
with. In addition, efforts are continuing to make further
improvements to the
underlying national concepts, methods and practices which will improve the quality,
reliability and relevance of the HICP yet further in the years ahead.

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Article 5(3) of Council Regulation (EC) No 2494/95 on HICPs states that
implementing measures for this Regulation which are necessary for ensuring the
comparability of HICPs and for maintaining and improving their reliability and
relevance should be adopted in accordance with the Regulatory Committee procedure.

In a number of cases Eurostat and the NSIs agreed not to make use of legal acts for
implementing the framework Council Regulation on HICPs but make use of
Guidelines instead, as a rapid, non-bureaucratic, practical and flexible tool for
maintaining and improving the comparability and quality of HICPs in the short term.
Most of these Guidelines have been clearly considered as preparatory measures for
Commission Regulations at a later point in time.

Recent experiences with the implementation of certain Guidelines suggest that a
‘conversion’ of them into binding legal acts in order to secure the comparability,
reliability and relevance of the HICP was desirable. Two of them, the Guidelines on
price reductions and on revisions, are in process of conversion.

Moreover, with the adoption of the latest three Regulations (insurance, sub-indices,
and social protection) the HICP legal framework has reached a complexity such that
the consolidation of implementing measures into a single act becomes even more
imperative.

Eurostat has on several occasions expressed its intention to consolidate as soon as
possible legislated and agreed implementing measures and also to provide
comprehensive documentation and guidance by means of a ‘HICP manual’.
Consolidation and elaboration of the HICP Manual are highly interdependent projects,
as consistency is an issue of major importance, and should therefore go hand in hand.

The review of the harmonization project provided in this Report shows an impressive
picture of how much has been achieved but it also makes clear that important work
remains to be done. The issue is that, in contrast to the importance of the project, the
resources available to the project are extremely limited, the list of tasks is rather long
and user requirements become increasingly demanding. Priority setting is certainly of
paramount importance to efficacy, but it is also the interaction between the issues to be
resolved and the current state of debate which together dictate the speed of progress.
Particular attention is thereby to be paid to those actions and measures which need yet
to be addressed in the form of implementing Regulations. Currently, the situation may
be summarised as follows:

81

Table 12

Status quo and future work

Subject

Importance

State of preparation

Quality adjustment

Owner-occupiers

Sampling

Timing of purchaser prices

Treatment of price reductions

Other financial services nec

Guideline on revisions policy

Treatment of seasonal items

Level of elementary aggregation

Consolidated Regulation

Exclusion of item groups (sub-
indices)

Exclusion of item groups (newly
significant products)

(+++)

(+++)

(+++)

(++)

(++)

(++)

(++)

(++)

(++)

(++)

(+)

(+)

ideas developed but far from
agreement

proposal by TF in Feb 2000

proposal by TF in Apr 2000

for vote at the May SPC

for vote at the May SPC

virtually ready

redrafting existing Guideline

slow progress

not started yet

not started yet

quite developed

quite developed

In the light of the above Eurostat has submitted for opinion to the May 2000 meeting
of the SPC the following programme of measures to the year 2002:

–

Items on the initial harmonization agenda that remain to be fixed

1.

2.

3.

4.

5.

Treatment of other financial services nec in the HICP

Treatment of owner-occupied housing in the HICP

Further minimum standards for sampling

Treatment of seasonal items in the HICP

Further Minimum standards on quality adjustment procedures.

–

Conversion of existing Guidelines into Regulations

6.

Revisions policy to HICP.

82

–

Preparatory measures leading to consolidation of
framework

the HICP legal

7.

Improving the minimum standard for sub-indices of the HICP;

Improving the treatment of newly significant goods and services in the

8.
HICP.

–

Consolidated Commission Regulation

Consolidation of implementing measures for Regulation (EC) 2494/95

9.
on HICPs.

The SPC largely agreed on the importance of the proposed programme, but it still
expressed divergent views on various points of the programme and on the procedure to
be followed. It was generally felt that the work programme was too ambitious, and that
priorities had to be reassessed. The SPC in its advisory capacity suggested that
following an ECB proposal this could be achieved by paying particular attention to
owner-occupied housing, adjustment for quality change, treatment of new products,
and keeping the weights in the index up to date. The SPC proposed that issues of little
impact on the HICP and issues that have not yet been considered in depth should be
withdrawn from the priority list. Furthermore, a revisions policy for the HICP would
have to be developed soon. The Commission (Eurostat) will take utmost consideration
of the advice given by the SPC and the opinion of the ECB with a view to maintaining
and improving the reliability and relevance of the HICPs as provided for in the HICP
framework Council Regulation.

83

ANNEX I

List of Regulations in June 2000

Council Regulation (EC) No 2494/95 of 23 October 1995 sets the legal basis for
establishing a harmonized methodology for the compilation of the HICPs, the MUICP,
the EICP and EEAICP. Following implementing EC Regulations on the methodology
of HICPs have been adopted within this ‘framework’ Regulation:

–

–

–

–

–

–

–

–

–

Commission Regulation (EC) No 1749/96 of 9 September 1996 on initial
implementing measures concerning harmonized indices of consumer prices
(OJ L 229, 10.9.1996, p. 3).

Commission Regulation (EC) No 2214/96 of 20 November 1996 on the
transmission and dissemination of sub-indices of the HICP (OJ L 296,
21.11.1996, p. 8).

Commission Regulation (EC) No 2454/97 of 10 December 1997 laying down
detailed rules as regards minimum standards for the quality of HICP
weightings (OJ L 340, 11.12.1997, p. 24).

Council Regulation (EC) No 1687/98 of 20 July 1998 amending Commission
Regulation (EC) No 1749/96 concerning the coverage of goods and services
in the HICP (OJ L 214, 31.7.1998, p. 12).

Council Regulation (EC) No 1688/98 of 20 July 1998 amending Commission
Regulation (EC) No 1749/96 concerning the geographic and population
coverage of the HICP (OJ L 214, 31.7.1998, p. 23).

Commission Regulation (EC) No 2646/98 of 9 December 1998 laying down
detailed rules as regards to minimum standards for the treatment of tariffs in
the HICP (OJ L 335, 10.12.1998, p. 30).

Commission Regulation (EC) No 1617/1999 of 23 July 1999 laying down
detailed rules with regard to minimum standards for the treatment of
insurance in the HICP and modifying Commission Regulation (EC)
No 2214/96 (OJ L 192, 24.7.1999, p. 9).

Commission Regulation (EC) No 1749/1999 of 23 July 1999 amending
Regulation (EC) No 2214/96, concerning the sub-indices of the harmonized
indices of consumer prices (OJ L 214, 13.8.1999, p. 1).

Council Regulation (EC) No 2166/1999 of 8 October 1999 laying down
detailed rules as regards minimum standards for the treatment of products in
the health, education and social protection sectors in the HICP (OJ L 266,
14.10.1999, p. 1).

84

ANNEX II

Country weights by item and country

EICP MUICP BE

DK

D

EL

E

F

IRL

I

01.

Food and non-alcoholic
beverages

135.6

166.8 183.3 161.7 140.3 210.9 243.7 170.0 189.8 174.0

01.1.

Food

123.1

151.8 165.3 142.4 121.1 201.5 232.6 157.0 175.2 162.5

01.1.1. Bread and cereals

20.4

26.9

32.2

23.2

24.2

25.0

32.3

24.0

35.4

30.3

01.1.2. Meat

30.2

42.5

51.1

37.6

31.8

48.9

65.8

52.0

47.3

41.8

01.1.3. Fish and seafood

6.2

12.0

11.0

6.2

6.2

13.5

35.9

13.0

4.7

12.0

01.1.4. Milk, cheese and eggs

17.5

22.5

21.7

21.1

17.6

35.1

30.4

24.0

26.6

24.7

01.1.5. Oils and fats

3.5

6.1

5.2

4.7

3.7

13.0

11.4

5.0

7.1

9.4

01.1.6. Fruit

9.8

11.7

11.5

7.0

10.1

15.3

22.8

10.0

9.4

11.5

01.1.7. Vegetables

18.5

15.8

14.9

15.9

12.1

27.8

24.3

15.0

22.2

20.2

01.1.8. Sugar, jam, honey,

13.5

10.4

12.5

21.4

10.4

17.4

7.2

10.0

16.8

12.0

chocolate and
confectionery

01.1.9. Food products n.e.c.

3.4

3.9

5.1

5.4

4.9

5.5

2.5

4.0

5.8

0.5

01.2.

Non-alcoholic beverages

12.5

15.0

18.0

19.3

19.2

9.3

11.1

13.0

14.6

11.5

01.2.1. Coffee, tea and cocoa

01.2.2. Mineral waters, soft drinks,

fruit and vegetable juices

02.

Alcoholic beverages and
tobacco

3.5

9.0

5.5

4.5

6.2

6.9

9.5

13.5

13.1

12.3

3.2

6.1

5.4

5.7

6.0

7.0

5.1

9.5

2.7

8.8

56.2

41.7

33.6

59.8

47.8

50.3

34.1

41.0

90.4

29.0

02.1

Alcoholic beverages

25.1

18.9

21.2

31.4

23.3

9.1

11.2

20.0

30.1

9.0

02.1.1. Spirits

02.1.2. Wine

02.1.3. Beer

6.7

3.8

2.7

3.7

11.0

8.2

12.8

11.9

3.0

7.0

7.4

6.9

5.7

15.9

13.4

4.0

1.7

3.5

2.0

6.0

11.7

6.3

12.0

2.8

2.0

8.7

9.6

1.6

6.0

1.4

02.2.

Tobacco

31.1

22.8

12.4

28.4

24.5

41.2

23.0

21.0

60.3

20.0

03.

Clothing and footwear

75.1

80.3

77.8

63.0

74.9 122.8 106.5

59.0

52.8 110.9

03.1.

Clothing

63.5

64.7

63.8

51.0

62.5

98.9

85.7

46.0

39.4

86.4

03.1.1. Clothing materials

0.6

0.7

0.8

0.7

0.5

0.5

3.0

0.0

0.4

0.2

03.1.2. Garments

59.2

59.7

59.2

46.7

59.2

93.3

78.2

40.0

35.8

80.5

03.1.3. Other articles of clothing
and clothing accessories

2.3

2.5

2.4

2.4

1.9

4.1

3.5

4.0

0.6

1.7

03.1.4. Cleaning, repair and hire of

1.8

1.8

1.3

1.1

1.0

1.1

1.0

2.0

2.6

4.0

clothing

03.2.

Footwear including repair

11.6

15.7

14.0

12.1

12.3

23.8

20.9

13.0

13.4

24.5

04.

Housing, water, electricity,
gas and other fuels

126.4

157.8 150.0 182.6 207.9

98.9 104.7 151.0

80.4 101.3

04.1.

Actual rentals for housing

57.85~ei

63.0

47.7

73.8

89.3

36.9

14.7

69.0

19.4

30.2

85

(cont.)

L

NL

A

P

FI

S

UK

EEAICP

IS

NO

120.2 157.6 131.1 215.5 173.2

156.9 121.0

136.0 192.7 140.5 Food and non-alcoholic

01.

beverages

110.8 142.2 118.4 207.9 155.7

141.4 109.0

123.4 169.6 125.2 Food

19.6

27.2

23.8

35.1

31.1

25.8

19.0

20.4

31.5

17.6 Bread and cereals

34.9

34.0

33.4

54.8

32.2

31.1

27.0

30.3

37.2

30.9 Meat

6.8

4.0

3.1

44.0

5.7

8.0

5.0

6.3

9.7

7.9 Fish and seafood

01.1.

01.1.1.

01.1.2.

01.1.3.

16.0

24.7

20.4

26.3

31.1

25.6

14.0

17.8

34.3

23.8 Milk, cheese and eggs

01.1.4.

4.6

4.3

5.0

12.2

5.2

8.7

12.0

8.7

17.4

10.7

4.6

12.4

2.0

9.0

3.5

4.5

3.1 Oils and fats

9.8

11.7

9.1 Fruit

9.6

17.2

10.6

10.5

16.8

13.8

18.0

18.2

14.5

11.8 Vegetables

7.4

10.0

9.3

5.9

17.8

16.8

12.0

13.6

18.1

13.8 Sugar, jam, honey,
chocolate and
confectionery

01.1.5.

01.1.6.

01.1.7.

01.1.8.

3.2

8.9

4.2

1.7

5.1

3.4

3.0

3.6

8.1

7.2 Food products n.e.c.

01.1.9.

9.4

15.4

12.7

7.6

17.5

15.5

12.0

12.6

23.2

15.3 Non-alcoholic beverages

01.2.

3.6

5.8

6.3

9.1

5.2

7.5

3.0

5.9

4.6

11.7

6.7

8.8

3.0

9.0

3.6

5.1

4.5 Coffee, tea and cocoa

01.2.1.

9.1

18.1

10.8 Mineral waters, soft drinks,

01.2.2.

fruit and vegetable juices

101.3

50.2

39.8

32.6

72.8

53.0

57.0

55.1

36.8

29.6 Alcoholic beverages and

02.

tobacco

30.5

22.9

18.8

13.0

45.9

31.4

26.0

24.7

17.8

15.9 Alcoholic beverages

02.1

13.1

9.7

7.7

7.3

7.1

8.5

2.8

9.1

6.9

1.4

14.6

9.4

7.0

6.6

9.4

10.8

12.5

12.0

10.7

2.2

20.4

9.5

7.0

7.4

7.3

3.5

7.0

4.7 Spirits

4.5 Wine

6.7 Beer

70.8

27.3

21.1

19.6

26.9

21.6

31.0

30.4

19.0

13.7 Tobacco

75.6

67.5

82.7

69.9

54.5

72.7

70.0

74.9

70.2

68.7 Clothing and footwear

59.8

54.5

69.8

51.7

44.8

61.8

60.0

63.3

57.7

58.3 Clothing

0.2

1.2

1.6

0.5

1.5

0.6

0.0

0.6

1.5

0.8 Clothing materials

56.8

50.3

62.2

48.3

39.7

56.6

56.0

59.0

48.3

54.1 Garments

0.7

2.2

3.5

2.1

2.9

3.0

2.0

2.4

5.2

2.8 Other articles of clothing
and clothing accessories

02.1.1.

02.1.2.

02.1.3.

02.2.

03.

03.1.

03.1.1.

03.1.2.

03.1.3.

2.1

0.9

2.6

0.7

0.7

1.5

2.0

1.8

2.8

0.6 Cleaning, repair and hire of

03.1.4.

clothing

15.8

12.9

12.8

18.2

9.7

10.9

10.0

11.6

12.4

10.4 Footwear including repair

03.2.

109.5 194.3 139.3

93.3 158.3

194.5 118.0

127.8

91.3 164.0 Housing, water, electricity,

04.

gas and other fuels

49.5 101.0

62.6

16.5

52.1 116.00~ei

53.0 57.32~ei

28.7

47.1 Actual rentals for housing

04.1.

86

EICP MUICP

BE

DK

D

EL

E

F

IRL

I

04.3.

Maintenance and repair of
the dwelling

17.5

18.3

21.9

15.3

16.4

14.5

38.2

15.0

11.8

14.1

04.3.1. Materials for the

8.6

8.7

17.2

7.6

9.1

5.4

25.2

2.0

11.8

3.4

maintenance and repair of
the dwelling

04.3.2. Services for the maintenance

9.7

9.7

4.7

7.6

7.2

9.1

13.0

13.0

0.0

10.8

and repair of the dwelling

04.4. Water supply and

12.8

26.7

13.0

20.3

40.4

16.1

24.3

21.0

0.8

16.6

miscellaneous services
relating to the dwelling

04.4.1. Water supply

5.54~ei

9.0

10.4

4.9

13.9

4.2 :

04.4.2. Refuse collection

5.36~i

04.4.3. Sewerage collection

5.22~ei

04.4.4. Other services relating to the

3.2

dwelling n.e.c.

7.1

6.0

5.3

2.7

0.0

0.0

9.1

9.6

4.8 :

4.3

10.7

1.4 :

2.0

6.2

5.8 :

7.0

5.0

4.0

5.0

0.2

0.2

0.2

0.1

4.1

7.0

1.2

4.3

04.5.

Electricity, gas and other
fuels

38.2

49.7

67.3

73.2

61.9

31.4

27.5

46.0

48.5

40.4

04.5.1. Electricity

19.8

21.9

33.0

27.7

26.3

16.5

15.9

24.0

19.4

12.2

04.5.2. Gas

10.5

13.4

14.7

8.0

11.8

1.1

6.9

11.0

7.2

20.0

04.5.3. Liquid fuels

04.5.4. Solid fuels

4.2

1.0

04.5.5. Heat energy

18.63~ei

8.7

18.6

13.1

9.5

13.1

1.8

8.6

1.1

1.6

1.7

0.0

22.8

12.6

0.8

0.0

4.7

0.0

0.0

8.0

8.4

1.0

13.5

2.0

0.0

8.2

0.0

0.0

05.

Furnishings, household
equipment and routine
maintenance of the house

05.1.

Furniture and furnishings,
carpets and other floor
coverings

76.2

81.1

81.3

70.8

76.9

80.8

59.1

72.0

45.4 109.7

30.8

33.2

25.2

27.4

39.9

19.9

15.4

21.0

9.1

44.7

05.1.1. Furniture and furnishings

25.5

29.1

23.0

23.9

34.2

16.7

14.1

19.0

6.2

41.3

05.1.2. Carpets and other floor

5.3

3.2

2.2

3.0

5.7

3.2

0.4

1.0

2.8

0.9

coverings

05.1.3. Repair of furniture,

0.5

0.6

0.0

0.5

0.1

0.0

0.9

1.0

0.0

2.5

furnishings and floor
coverings

05.2.

Household textiles

8.6

6.9

8.5

6.6

6.9

15.2

5.1

7.0

3.7

6.0

05.3.

Household appliances

11.1

11.9

12.1

10.5

11.1

05.3.1./

05.3.2.

Major household appliances
whether electric or not and
household
small
appliances

electric

10.1

10.8

9.9

9.5

10.8

8.5

7.0

9.4

13.0

7.6

13.1

8.0

12.0

7.1

11.0

87

L

NL

A

P

FI

S

UK EEAICP

IS

NO

16.2 20.1 21.1 23.7 14.3

0.4 20.0

18.8 13.1 51.0 Maintenance and repair of

04.3.

the dwelling

10.2 14.3 11.6

9.0

6.2

0.4 10.0

9.5 10.8 31.8 Materials for the

04.3.1.

maintenance and repair of
the dwelling

6.0

5.8

9.5 14.7

8.2

0.0 10.0

10.1

2.3 19.2 Services for the

04.3.2.

maintenance and repair of
the dwelling

7.8 24.6 10.5 14.8 38.0

10.8 12.0

12.9 11.8 14.6 Water supply and

04.4.

miscellaneous services
relating to the dwelling

4.0

8.8

2.5

9.1

1.8 3.40~ei

6.0 5.48~ei

4.8

4.2 Water supply

3.0

9.6

2.4

1.0

2.0 3.20~i

0.0 5.13~i

2.5

4.0 Refuse collection

0.8

4.1

3.5

4.7

2.6 3.40~ei

6.0 5.24~ei

4.5

5.9 Sewerage collection

0.0

2.1

2.1

0.0 31.6

0.9

0.0

2.8

0.0

0.5 Other services relating to
the dwelling n.e.c.

36.0 48.6 45.0 38.3 53.9

67.2 33.0

38.7 37.8 51.3 Electricity, gas and other
fuels

17.1 19.2 20.3 26.9 29.1

43.8 17.0

20.7 18.2 42.3 Electricity

7.3 29.4

6.6

9.2

0.2

0.6 13.0

10.5

0.0

0.0 Gas

11.2

0.0

7.0

0.0

7.7

7.3

2.0

4.3

0.0

4.7 Liquid fuels

0.4

0.0

5.6

2.2

1.7

0.0

1.0

1.2

0.0

4.2 Solid fuels

0.0

0.0

5.5

0.0 15.3 15.50~ei

0.0 14.62~ei

19.6

0.1 Heat energy

107.7 92.2 90.0 78.7 51.3

58.0 78.0

76.1 61.1 75.2 Furnishings, household
equipment and routine
maintenance of the house

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.

44.3 40.0 39.8 29.0 18.0

26.0 33.0

30.7 26.0 29.2 Furniture and furnishings,

05.1.

carpets and other floor
coverings

41.7 28.9 37.3 24.4 15.2

23.3 27.0

25.5 24.1 27.2 Furniture and furnishings

05.1.1.

2.6 10.2

2.5

3.1

1.4

2.6

6.0

5.1

0.2

2.0 Carpets and other floor

05.1.2.

coverings

0.0

0.9

0.0

1.5

1.3

0.0

0.0

0.6

1.7

0.0 Repair of furniture,

05.1.3.

furnishings and floor
coverings

7.2 10.5

8.3

9.3

5.3

7.4

8.0

8.5

7.0

6.1 Household textiles

12.2

9.5 19.4 12.0 10.1

6.1 12.0

11.2

9.2 14.9 Household appliances

05.2.

05.3.

11.9

8.9 17.0

8.9

8.9

5.9 11.0

10.2

8.5 14.1 Major household appliances

05.3.1./

whether electric or not and
small electric household
appliances

05.3.2.

88

05.3.3.

Repair of household
appliances

05.4.

05.5.

05.6.

Glassware, tableware and
household utensils

Tools and equipment for
house and garden

Goods and services for
routine household
maintenance

05.6.1.

Non-durable household
goods

05.6.2.

Domestic services and
household services

EICP MUICP

BE

DK

D

EL

E

F

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I

1.0

1.1

2.2

1.0

0.3

1.5

1.4

1.0

0.5

2.1

6.9

5.8

4.5

7.0

4.0

8.4

3.7

6.0

3.9

10.7

5.5

5.1

6.6

6.0

6.9

1.1

1.8

4.0

5.0

5.0

13.3

18.3

24.4

13.2

8.1

27.7

23.8

21.0

16.2

30.4

8.6

9.9

13.0

8.5

6.9

21.1

14.1

9.0

12.6

14.2

5.2

8.3

11.4

4.8

1.2

6.6

9.7

12.0

3.6

16.2

06.

Health

19.5

31.9

32.2

26.1

34.2

47.9

22.9

32.0

20.1

34.0

06.1.

Medical products,
appliances and equipment

06.1.1.

Pharmaceutical products

06.1.2./

06.1.3.

Other medical products;
therapeutic appliances and
equipment

06.2.

Out-patient services

06.2.1./

06.2.3.

Medical services;
paramedical services

06.2.2.

Dental services

06.3.

Hospital services

10.3

14.6

22.7

14.1

15.0

6.0

8.8

16.0

9.8

19.8

7.1

3.1

9.2

4.1

5.1

0.0

10.5

15.5

8.8

12.0

4.1

7.2

5.2

3.0

5.0

1.0

5.3

11.0

1.6

17.1

3.5

5.0

8.3

2.6

16.8

9.5

12.1

19.2

41.9

14.1

16.0

10.3

14.3

9.7

8.3

3.4

10.6

20.1

5.0

10.0

6.9

8.5

7.2

0.0

1.2

0.0

8.6

0.0

8.6

21.8

0.0

0.0

9.1

0.0

6.0

0.0

3.4

0.0

5.8

0.0

07.

Transport

157.6

156.5

148.8 164.7 154.3 128.3 136.8

180.0 118.1 150.3

07.1.

Purchase of vehicles

53.5

48.9

59.8

71.6

46.1

31.1

52.3

48.0

39.6

48.9

07.1.1.

Motor cars

50.5

44.6

56.7

66.9

40.3

30.4

49.2

45.0

38.0

45.5

07.2.

Operation of personal
transport equipment

07.2.1.

07.2.2.

Spares parts and
accessories for personal
transport equipment

Fuels and lubricants for
personal transport
equipment

07.2.3. Maintenance and repair of
personal transport
equipment

07.2.4. Other services in respect of
personal transport
equipment

73.7

85.8

77.5

73.0

85.5

66.3

68.8

106.0

60.6

81.3

7.5

9.7

4.6

10.2

3.7

10.2

3.8

30.0

4.9

3.7

39.0

40.1

50.6

32.3

41.7

40.5

42.7

44.0

45.0

29.5

19.7

24.7

18.3

21.1

24.4

10.4

17.4

22.0

7.0

35.5

7.6

11.3

3.9

9.4

15.8

5.2

5.0

10.0

3.8

12.6

07.3.

Transport services

30.4

21.8

11.4

20.0

22.7

30.9

15.7

26.0

17.9

20.1

07.3.1.

Passenger transport by
railway

6.8

4.7

3.3

6.7

6.6

0.5

1.9

5.0

2.2

2.7

89

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0.3

0.6

2.5

3.1

1.3

0.2

1.0

1.0

0.7

0.8 Repair of household

05.3.3.

3.7

5.7

5.4

6.1

3.2

4.4

7.0

6.8

5.1

appliances

4.8 Glassware, tableware and
household utensils

6.0

5.4

3.9

1.0

3.5

6.4

6.0

5.6

3.1

7.1

Tools and equipment for
house and garden

34.3

21.0

13.2

21.4

11.3

7.8

12.0

13.3

10.7

13.1 Goods and services for
routine household
maintenance

05.4.

05.5.

05.6.

17.0

9.3

9.2

11.0

9.2

7.8

7.0

8.6

9.4

9.0 Non-durable household

05.6.1.

goods

17.3

11.7

4.0

10.4

2.1

0.0

5.0

5.1

1.4

4.1 Domestic services and

05.6.2.

household services

14.2

21.7

19.1

56.7

45.3

29.9

14.0

19.8

33.5

27.1 Health

9.8

7.3

10.3

25.6

24.8

15.0

10.0

10.3

12.1

11.6 Medical products,

appliances and equipment

06.

06.1.

4.0

2.5

5.5

21.5

17.7

9.6

5.8

4.8

4.9

4.1

7.1

5.4

4.4

14.4

8.8

31.2

20.5

14.8

2.5

9.9

3.4

23.0

12.2

4.1

1.9

0.0

4.6

0.0

5.4

0.0

8.1

0.0

8.3

10.7

0.0

0.0

7.0

3.0

4.0

2.0

2.0

0.0

7.1

8.6

7.0 Pharmaceutical products

06.1.1.

3.2

3.5

4.6 Other medical products;

06.1.2./

therapeutic appliances and
equipment

06.1.3.

9.5

21.4

15.5 Out-patient services

06.2.

4.2

6.8

5.7 Medical services;

paramedical services

5.4

14.6

9.8 Dental services

0.0

0.0

0.0 Hospital services

192.2 134.5 145.2 205.2 162.6 157.5 161.0

160.4 201.3 222.7

Transport

59.5

44.1

47.6

95.2

48.6

53.3

55.0

56.1

97.4 114.3 Purchase of vehicles

58.1

37.9

41.3

91.9

46.6

49.3

52.0

53.0

95.6 107.9 Motor cars

07.1.1.

117.7

67.5

78.2

94.9

75.2

81.1

74.0

73.7

79.6

72.4 Operation of personal

07.2.

transport equipment

5.9

8.4

4.4

9.2

10.0

6.6

7.0

7.5

12.8

8.3 Spares parts and

07.2.1.

84.8

37.0

32.8

40.8

53.3

50.9

38.0

39.1

51.3

23.7

17.1

30.8

38.8

9.2

18.6

21.0

19.6

12.5

accessories for personal
transport equipment

41.8 Fuels and lubricants for
personal transport
equipment

16.5 Maintenance and repair of
personal transport
equipment

07.2.2.

07.2.3.

3.3

5.1

10.2

6.0

2.7

5.0

8.0

7.5

3.1

5.8 Other services in respect of

07.2.4.

personal transport
equipment

15.0

22.9

19.4

15.1

38.8

23.1

32.0

30.6

24.3

36.0 Transport services

07.3.

1.3

6.9

3.4

1.0

4.8

4.0

8.0

6.8

0.0

5.8 Passenger transport by

07.3.1.

railway

90

06.2.1./

06.2.3.

06.2.2.

06.3.

07.

07.1.

07.3.2.

Passenger transport by
road

07.3.3.

Passenger transport by air

07.3.4.

Passenger transport by sea
and inland waterway

07.3.5.

Combined passenger
transport

EICP MUICP

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12.7

5.6

5.4

4.6

2.1

15.9

12.1

9.0

11.5

3.2

7.9

1.5

4.0

0.9

1.4

0.0

2.5

2.3

1.6

1.3

5.1

4.2

1.6

0.2

7.0

0.0

1.7

0.3

6.0

1.3

5.71

6.79

1.2

3.2

10.4

4.1

0.0

4.0

1.9

5.4

07.3.6. Other purchased transport

0.79

0.88

0.0

0.7

0.8

1.2

0.0

1.0

0.3

1.3

services

08.

Communications

25.7

23.3

22.6

19.0

21.1

26.8

14.1

27.0

16.2

28.2

08.1.

Postal services

1.9

2.4

1.3

1.2

4.0

0.6

0.5

2.0

1.3

1.6

08.2./

08.3.

08.2.

08.3.

Telephone and telefax
equipment and services

Telephone and telefax
equipment

Telephone and telefax
services

23.8

20.9

21.3

17.0

17.1

26.2

13.6

25.0

14.9

26.6

17.8

2.6

0.9

17.8

0.4 :

0.8

19.4

20.4

0.8

16.7 :

:

:

1.0

0.0

9.4

24.0

0.0

17.2

09.

Recreation and culture

133.6

96.9

111.3 118.7 114.6

43.2

64.6

93.0 114.3

73.5

09.1.

Audio-visual, photographic
and information processing
equipment

19.8

16.5

16.5

29.1

18.8

10.3

13.3

21.0

6.0

9.7

09.1.1. Equipment for the

7.0

6.3

4.7

10.9

7.1

2.0

3.6

8.0

2.6

4.7

reception, recording and
reproduction of sound and
pictures

09.1.2. Photographic and

2.9

1.6

1.0

1.9

1.9

4.4

0.6

2.0

0.5

1.7

cinematographic equipment
and optical instruments

09.1.3.

Information processing
equipment

09.1.4. Recording media

09.1.5. Repair of audio-visual,

photographic and
information processing
equipment

09.2.

Other major durables for
recreation and culture

09.2.1.
/

09.2.2.

Major durables for indoor
and outdoor recreation
including musical
instruments

3.2

3.6

4.3

9.9

5.4

0.4

4.3

3.0

0.2

1.3

5.7

1.0

4.1

0.9

5.0

1.5

4.7

1.8

3.6

0.9

2.9

0.6

3.3

1.7

7.0

1.0

2.7

0.0

1.8

0.3

6.0

2.5

1.5

5.1

1.5

0.4

0.0

2.0

1.3

4.8

6.0

2.4

1.5

5.1

1.5

0.4

0.0

2.0

1.3

4.8

09.2.3. Maintenance and repair of

:

0.6

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

other major durables for
recreation and culture

91

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2.9

8.5

6.1

3.7

19.7

2.4

14.0

12.6

12.2

11.4 Passenger transport by

07.3.2.

road

6.0

0.0

6.2

0.8

5.1

0.0

1.6

9.1

5.1

9.0

8.0

11.2

9.7 Passenger transport by air

07.3.3.

0.0

4.8

1.6

1.0

1.5

0.8

3.6 Passenger transport by sea
and inland waterway

07.3.4.

4.4

0.0

4.8

7.77

0.4

9.6

0.0

5.68

0.0

5.5 Combined passenger

07.3.5.

transport

0.4

0.5

0.1

1.01

0.1

0.4

0.0

0.79

0.0

0.0 Other purchased transport

07.3.6.

services

13.3

20.4

32.1

20.6

23.9

35.8

25.0

25.5

18.0

20.6 Communications

1.1

1.6

1.2

0.1

2.5

2.7

2.0

1.8

1.5

1.1 Postal services

12.2

18.8

30.8

20.5

21.5

33.1

23.0

22.8

16.5

0.7 Telephone and telefax

equipment and services

08.

08.1.

08.2./

08.3.

08.2.

0.5 :

0.9

0.1

1.5 :

11.7 :

30.0

20.4

20.0 :

:

:

10.6

0.8

0.7 Telephone and telefax

equipment

8.2

15.8

18.8 Telephone and telefax

08.3.

services

110.0 120.6 116.3

39.2 115.1 114.4 149.0

133.7 130.1 136.1 Recreation and culture

09.

17.1

16.2

17.0

11.6

15.0

22.5

20.0

20.2

13.1

30.7 Audio-visual, photographic
and information processing
equipment

09.1.

5.7

5.9

7.5

3.9

5.9

9.9

7.0

7.3

3.8

15.0 Equipment for the

09.1.1.

reception, recording and
reproduction of sound and
pictures

1.9

1.7

1.4

0.4

1.5

1.2

3.0

2.9

1.4

2.8 Photographic and

09.1.2.

cinematographic equipment
and optical instruments

5.5

1.7

3.1

1.5

3.4

3.4

3.0

3.3

1.5

6.5 Information processing

09.1.3.

2.9

1.1

5.8

1.1

3.5

1.5

3.6

2.1

3.6

0.7

7.0

1.0

6.0

1.0

5.7

1.0

4.7

1.8

equipment

5.9 Recording media

0.5 Repair of audio-visual,
photographic and
information processing
equipment

09.1.4.

09.1.5.

4.8

4.1

1.3

0.2

5.3

4.3

7.0

6.1

1.3

7.9 Other major durables for

09.2.

recreation and culture

4.0

3.2

1.3

0.1

5.3

4.3

7.0

6.1

1.3

7.9 Major durables for indoor

09.2.1./

and outdoor recreation
including musical
instruments

09.2.2.

0.8

0.8

0.0

0.0

0.0

0.0

0.0 :

0.0

0.0 Maintenance and repair of

09.2.3.

other major durables for
recreation and culture

92

09.3.

Other recreational items
and equipment, gardens
and pets

EICP MUICP BE

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29.0

18.7 23.1 24.8 21.4

6.1

7.5 20.0

13.5

14.3

09.3.1.

Games, toys and hobbies

12.4

4.2

5.0

6.4

3.7

09.3.2.

Equipment for sport,
camping and open-air
recreation

4.4

3.1

1.7

2.9

3.7

09.3.3.

Gardens, plants and flowers

5.1

7.1

8.8

8.8

9.5

7.05~i

4.3

7.6

6.7

4.5

3.0

0.7

0.3

2.2

4.6

5.0

0.7

4.0

1.1

6.0

1.1

5.0

3.3

1.5

5.4

3.3

3.6

2.4

5.4

2.9

09.3.4./

09.3.5.

Pets and related products;
veterinary and other
services for pets

09.4.

Recreational and cultural
services

09.4.1.

Recreational and sporting
services

32.3

26.0 27.2 26.6 28.2

10.9

16.2 30.0

38.3

19.7

12.2

10.8

5.0

8.2

7.9

2.0

10.2 13.0

12.0

14.1

09.4.2.

Cultural services

20.2

15.2 22.2 18.4 20.3

8.9

6.0 17.0

26.4

5.6

09.5.

Newspapers, books and
stationery

23.3

21.6 19.5 23.1 25.1

13.2

18.3 17.0

25.4

22.0

09.5.1.

Books

4.2

7.6

6.9

5.5

9.6

10.4

10.4

9.6 14.7 11.2

4.2

8.5

8.8

4.0

5.8

8.2

6.3

9.0

16.0

11.3

8.7

3.7

3.0

2.9

4.4

0.6

3.1

4.0

3.6

2.6

09.5.2.

Newspapers and
periodicals

09.5.3./

09.5.4.

Miscellaneous printed
matter; stationery and
drawing materials

09.6.

Package holidays

23.2

12.0 23.5 10.1 19.6

2.4

9.3

3.0

29.8

3.0

10.

11.

Education

12.8

8.8

4.7

8.8

7.1

21.7

15.8

5.0

19.8

10.8

Restaurants and hotels

123.2

85.3 83.2 54.0 51.4 111.8 151.6 84.0 196.9 101.9

11.1.

Catering services

105.6

70.1 65.0 50.5 43.2 103.2 143.4 69.0 180.1

76.7

11.1.1.

Restaurants, cafés and the
like

99.0

62.3 61.7 46.0 38.4

98.7 139.7 54.0 171.5

68.9

11.1.2.

Canteens

6.6

7.8

3.4

4.5

4.8

11.2.

Accommodation services

17.6

15.2 18.1

3.5

8.2

4.5

8.7

3.7 15.0

8.7

7.8

8.2 15.0

16.8

25.3

12.

Miscellaneous goods and
services

12.1.

Personal care

12.1.1.

12.1.2./

12.1.3.

Hairdressing salons and
personal grooming
establishments

Electrical appliances for
personal care; other
appliances, articles and
products for personal care

58.1

69.8 71.3 70.8 69.6

56.6

46.4 86.0

55.8

76.3

27.8

8.0

28.6 26.5 27.0 29.5

23.5

26.8 32.0

11.9 11.0

9.4 14.0

5.0

10.0 10.0

28.1

13.3

26.8

13.2

19.8

16.7 15.5 17.6 15.6

18.4

16.9 22.0

14.8

13.7

12.3.

Personal effects n.e.c.

12.3.1.

Jewellery, clocks and
watches

12.3.2.

Other personal effects

9.3

7.0

2.4

10.6

7.0

7.5

7.8

14.4

5.8 14.0

6.1

16.8

5.6

4.1

2.9

5.5

10.7

3.7

7.0

5.0

6.4

5.0

2.9

4.6

2.3

3.7

2.1

7.0

1.1

10.5

93

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22.2 26.1

26.1

4.4 23.2

23.0

33.0

28.7 18.7 23.1 Other recreational items
and equipment, gardens
and pets

09.3.

5.5

5.6

1.6

2.7

6.0

5.2

0.9

4.3

5.1

15.0

12.1

6.2

4.3 Games, toys and hobbies

09.3.1.

0.3

5.1

4.3

5.0

4.4

4.4

4.8 Equipment for sport,

09.3.2.

camping and open-air
recreation

7.8 10.3

9.4

1.5

8.3

9.0

5.0

5.2

6.2

8.2 Gardens, plants and

09.3.3.

7.3

7.4

5.6

1.6

5.5 4.60~i

8.0 6.98~i

2.0

flowers

5.8 Pets and related products;
veterinary and other
services for pets

09.3.4./

09.3.5.

24.0 34.0

31.7

7.8 24.2

29.4

36.0

32.4 45.3 32.8 Recreational and cultural

09.4.

services

8.7 14.2

16.6

3.2

9.6

10.7

14.0

12.2 15.6 12.5 Recreational and sporting

09.4.1.

services

15.3 19.8

15.1

4.6 14.7

18.7

22.0

20.2 29.7 20.3 Cultural services

09.4.2.

20.2 25.5

18.2

10.9 27.2

20.0

25.0

23.3 31.4 21.8 Newspapers, books and

09.5.

stationery

9.0

7.0

8.7 14.6

6.4

8.2

5.5

5.3

5.6

4.0

4.4 14.3

7.0 Books

3.9 19.4

13.1

10.0

10.5 13.1 13.2 Newspapers and

2.5

3.9

3.6

1.5

2.5

1.4

11.0

8.4

4.0

periodicals

1.6 Miscellaneous printed
matter; stationery and
drawing materials

21.7 14.8

22.0

4.5 20.2

15.1

28.0

23.1 20.4 19.8 Package holidays

1.1 15.9

7.4

18.2

2.1

3.5

13.0

12.9 14.4 14.3 Education

96.1 71.7 143.3 130.9 93.9

63.5 137.0

120.0 83.5 45.0 Restaurants and hotels

81.4 57.4

99.4 100.2 77.9

55.1 116.0

102.9 64.5 41.0 Catering services

09.5.1.

09.5.2.

09.5.3./

09.5.4.

09.6.

10.

11.

11.1.

77.9 48.2

95.1

91.5 63.0

48.1 109.0

96.4 56.6 37.4 Restaurants, cafés and the

11.1.1.

like

3.5

9.3

4.3

8.7 14.9

6.9

7.0

6.5

7.8

3.6 Canteens

11.1.2.

14.7 14.2

43.9

30.6 16.0

8.4

21.0

17.1 19.0

4.0 Accommodation services

11.2.

58.8 53.4

53.8

39.4 46.9

60.3

57.0

58.1 67.2 56.2 Miscellaneous goods and

12.

services

24.1 23.9

28.6

23.8 21.1

23.2

29.0

27.6 29.5 22.5 Personal care

10.5

8.9

10.0

10.3

7.4

11.1

8.0

8.1 14.3

9.3 Hairdressing salons and
personal grooming
establishments

12.1.

12.1.1.

13.6 14.9

18.6

13.5 13.7

12.1

21.0

19.5 15.3 13.2 Electrical appliances for

12.1.2./

personal care; other
appliances, articles and
products for personal care

12.1.3.

11.6

8.8

10.9

4.9

6.2

7.5

4.6

6.4

2.9

3.9

7.3

5.1

9.0

7.0

9.2

5.7

6.3 Personal effects n.e.c.

12.3.

6.8

3.1

3.2 Jewellery, clocks and

12.3.1.

watches

4.1

4.2

4.5

2.0

2.4

2.2

2.0

2.4

2.5

3.1 Other personal effects

12.3.2.

94

12.4.

Social protection

12.5.

Insurance

12.5.2.

Insurance connected with
the dwelling

12.5.3.

Insurance connected with
health

12.5.4.

Insurance connected with
transport

EICP MUICP BE

DK

D

EL

E

F

IRL

I

6.9

6.7

2.0

1.9

2.5 16.7

1.1 0.0 0.5

3.0

4.1

3.7

16.1 20.2 12.0 23.5 7.1 4.8 18.0 13.1

8.6

3.0

5.4

3.5

2.4 0.2 0.5

5.0

1.7

0.0

2.5

5.8

6.3

5.1

6.4 4.8 1.8

8.0

9.0

0.0

2.2

6.5

7.5

3.4

8.1 2.1 2.5

5.0

2.3

8.6

12.5.5.

Other insurance

12.6.

Financial services n.e.c.

12.7.

Other services n.e.c.

0.0

2.6

5.6

5.0

1.1

0.0

6.5 0.0 0.0

0.0

0.1

0.0

3.9

2.9

5.6

3.4 4.8 0.2

5.0

1.0

7.8

8.4 12.1

2.1

4.2 6.8 8.3 14.0

3.4 12.6

~e = estimated
~i = definition differs
: = not available

95

L

NL

A

P

FI

S

UK EEAICP

IS

NO

3.5

3.9

0.6

2.6

5.7

7.3

14.1

12.5

8.9

6.7

7.9

8.1

6.0

6.0

7.3

12.5

16.0 Social protection

6.7

8.3

7.0 Insurance

12.4.

12.5.

1.5

3.3

2.5

1.0

1.6

3.1

2.0

2.0

2.9

2.0 Insurance connected with

12.5.2.

the dwelling

1.4

4.0

3.0

0.1

1.3

2.0

2.0

2.5

0.0

0.0 Insurance connected with

12.5.3.

health

10.0

4.2

3.4

4.7

5.0

3.0

2.0

2.3

5.4

5.0 Insurance connected with

12.5.4.

transport

1.2

1.0

0.0

0.9

0.0

0.0

0.0

0.0

0.0

0.0 Other insurance

12.5.5.

0.3

0.4

2.3

0.1

1.2

11.7

1.0

2.5

4.1

0.8 Financial services n.e.c.

12.6.

5.2

3.9

2.6

1.5

4.7

2.6

6.0

5.5

7.1

3.6 Other services n.e.c.

12.7.

96

ANNEX III

Country weights for 2000, price updated to December 1999 prices

MUICP

EICP

EEAICP

Belgium

Germany

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

39.90

346.51

90.83

209.07

9.80

183.08

1.99

56.54

29.10

18.13

15.07

Euro-zone (MUICP)

1000.00(*)

783.49

775.92

Denmark

Greece

Sweden

United Kingdom

EU15 (EICP)

Iceland

Norway

EEA (EEAICP)

13.50

21.87

17.80

13.37

21.66

17.63

163.34

161.76

1000.00(*)

0.82

8.84

1000.00(*)

(*) Due to rounding effects, the weights may not add up exactly to 1000.

97