Commission Regulation (EC) No 1334/2007 of 14 November 2007 amending Regulation (EC) No 1749/96 on initial implementing measures for Council Regulation (EC) No 2494/95 concerning harmonised indices of consumer prices (Text with EEA relevance)
Date: 2007-11-14
Institutions: European Commission
Subjects: consumer price, economic statistics, harmonisation of prices, price index, product quality, quality standard

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Official Journal of the European Union

15.11.2007

COMMISSION REGULATION (EC) No 1334/2007

of 14 November 2007

amending Regulation (EC) No 1749/96 on initial implementing measures for Council Regulation
(EC) No 2494/95 concerning harmonised indices of consumer prices

(Text with EEA relevance)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

Having regard to the Treaty
Community,

establishing the European

Having regard to Council Regulation (EC) No 2494/95 of 23
October 1995 concerning harmonized indices of consumer
prices (1), and in particular third paragraph of Article 4 and
Article 5(3) thereof,

Having regard to the opinion of the European Central Bank (2),
as required under Article 5(3) of Regulation (EC) No 2494/95,

Whereas:

(1)

(2)

(3)

Harmonised Indices of Consumer Prices
(HICP) are
harmonised inflation figures required by the Commission
and the European Central Bank for the performance of
their functions under Article 121 of the EC Treaty. HICPs
are designed to facilitate international comparisons of
consumer price inflation. They serve as important indi-
cators for the management of monetary policy.

The HICP constitutes a rather complete conceptual
framework. Very considerable progress has been made
in harmonizing methodologies since the initial
imple-
menting measures were adopted, but scope for non-
comparability remains with regard to sampling, replace-
ment, quality adjustment and aggregation procedures.

The existing HICP framework provides a definition of the
HICP as a Laspeyres-type index concerned with the
changing power of money to acquire goods
and
services for the purposes of directly satisfying consumer
needs. This definition reflects the current understanding
of consumer inflation in the European Union and the
euro zone in particular.

(1) OJ L 257, 27.10.1995, p. 1. Regulation as amended by Regulation
(EC) No 1882/2003 of the European Parliament and of the Council
(OJ L 284, 31.10.2003, p. 1).

(2) Opinion delivered on 5 October 2007 (OJ C 248, 23.10.2007, p. 1).

defined

patterns,

products

The HICP relates to the prices of all
the products
purchased by consumers, when they seek to maintain
consumption
by
i.e.
elementary expenditure categories (weights). These cate-
gories consist of explicitly stated consumption segments
distinguishable by consumption purpose. The set of all
product-offers in the statistical universe can be exhaus-
tively divided into consumption segments. Consumption
segments are relatively stable over time although the
product-offers comprising a consumption segment will
change as markets evolve.

The notion of consumption segments by purpose is
therefore central
to sampling and to the meaning of
quality change and quality adjustment. However, an
ambiguity in this concept concerns the level of aggre-
gation at which it is defined and applied.

The range of product-offers will change over time as
products are modified or replaced by retailers and manu-
facturers. The HICP requires the representation of all
currently available product-offers within the consumption
segments by purpose selected in the reference period in
order to measure their impact on inflation. This applies
particularly to new models or varieties of previously
existing products.

Quality change thus relates to the degree to which
available products are fit to serve the purpose of the
to which they belong. Quality
consumption segment
change should be assessed by reference to the specifi-
cation of concrete products within a consumption
segment.

In order to address these issues, a number of clarifi-
cations and amendments
to Commission Regulation
(EC) No 1749/96 of 9 September 1996 on initial imple-
menting measures
for Council Regulation (EC) No
2494/95 concerning harmonized indices of consumer
prices (3) are necessary for ensuring comparability of
HICPs and maintaining their reliability and relevance in
accordance with Article
(EC)
No 2494/95.

Regulation

of

5

(5)

(6)

(7)

(8)

(3) OJ L 229, 10.9.1996, p. 3. Regulation as last amended by Regu-

lation (EC) No 1708/2005 (OJ L 274, 20.10.2005, p. 9).

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(9)

the HICP,

It is therefore necessary to further specify the purposes
and definition of
to clarify where those
determine the actual practices of sampling, replacement,
and quality adjustment, and to establish the required
form, and to
representation of
establish further minimum standards with respect
to
sampling, replacement, quality adjustment and aggre-
gation procedures.

the HICP and its

(10)

In particular, it is necessary to set a clear statistical target
for the purposes of sampling, replacement and quality
adjustment and ensure that the HICP measures close to
the target, with a reasonably small uncertainty or error in
terms of bias and variance. A trade-off between unbia-
sedness and precision must be considered.

(11) With a view to further specifying the target universe of
the HICP and resolving the issue of the ‘fixity’ of the
HICP basket, the concept of ‘consumption segments by
purpose’ offers a workable solution as it can build the
necessary fixity into the Laspeyres-type index and make
the concept meaningful in a world of evolving markets.

(12)

(13)

It is necessary to ensure that consumption segments in
the reference period are selected to represent the entire
partition of the transactions universe and that replace-
ments maintain the representation of current product
offers within consumption segments already represented
in the HICP. The representation of household final
monetary expenditure by consumption purpose should
reflect the dynamic nature of evolving markets.

It must be ensured that judgements by Member States on
whether quality change occurs are based on evidence of
differences in price determining characteristics that are
relevant to the consumer purposes in question. To this
effect specific quality adjustment standards should be
developed by the Commission (Eurostat) on a case-by-
case basis.

(14)

Furthermore, it is necessary to broaden the definition of
elementary aggregates and to further harmonise aggre-
gation and replacement practices within elementary
aggregates.

(17)

The measures provided for in this Regulation are in
accordance with
Statistical
Programme Committee, established by Council Decision
89/382/EEC, Euratom (1),

opinion

the

the

of

HAS ADOPTED THIS REGULATION:

Article 1

Regulation (EC) No 1749/96 is amended as follows:

1. Article 2 is replaced by the following:

‘Article 2

Definitions

For the purpose of this Regulation, the following definitions
shall apply:

that part of

expenditure which

1. “Household final monetary consumption expenditure” as
specified in Annex lb means
final
consumption
by
households
residence
in monetary transactions, on the economic
status,
territory of the Member State, on goods and services
individual
that are used for the direct satisfaction of
needs or wants, and in one or both of
the time
periods being compared.

irrespective of nationality or

incurred

is

2. “Product-offer” means a specified good or service that is
offered for purchase at a stated price,
in a specific
outlet or by a specific provider, under specific terms
of supply, and thus defines a unique entity at any one
time.

3. The “coverage” of the HICP, that is the statistical “target
universe” to be represented by the HICP, means the set
of all transactions falling within the scope of household
final monetary consumption expenditure.

4. A “consumption segment by purpose” or “consumption
segment” means a set of
relating to
product-offers which, on the grounds of common
properties, are deemed to serve a common purpose,
in the sense that they:

transactions

— are marketed for predominant use

in similar

situations,

(15)

The principle of cost-effectiveness has been taken into
account
in accordance with Article 13 of Regulation
(EC) No 2494/95.

— can largely be described by a common specification,

and

(16)

Regulation (EC) No 1749/96 should therefore be
amended accordingly.

(1) OJ L 181, 28.6.1989, p. 47.

— may be considered by consumers as equivalent.

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5. “Newly significant goods and services” mean those
goods and services the price changes of which are
not explicitly included in a Member State's HICP and
the estimated consumers’ expenditure on which has
become at least one part per thousand of the expen-
diture covered by that HICP.

6. “Sampling” means any procedure in the construction of
the HICP where a subset of the universe of product-
offers is selected to estimate the price change for
consumption segments covered by the HICP.

7. “Target sample” means the set of product-offers within
consumption segments for which the Member State
plans to observe prices in order to achieve a reliable
the HICP target
and comparable representation of
universe.

15. An “elementary aggregate index” means a price index

for an elementary aggregate.

16. “Quality change” means that a replacement has resulted
in a significant difference in the degree to which the
replacement product-offer serves the consumer purpose
to which it belongs,
of
whenever the Member State judges so.

the consumption segment

17. “Quality adjustment” means the procedure of making
an allowance for an observed quality change by
increasing or decreasing the observed current or
reference price by a factor or an amount equivalent
to the value of that quality change.

___________
(*) OJ L 340, 11.12.1997, p. 24.’

8. “Weights” used in HICP aggregations mean the appro-
priate estimates of relative expenditures on any sub-
division of
in accordance with
the target universe,
Commission Regulation (EC) No 2454/97 (*).

2. The following Article 2a is inserted:

9. “Observed price” means a price actually confirmed by

the Member States.

‘Article 2a

Principles

10. “Replacement product-offer” means a product-offer
with an observed price that replaces a product-offer
in the target sample.

11. “Replacement price” means the observed price for a

replacement product-offer.

12. “Estimated price” means a price which is substituted for
an observed price and is based on an appropriate esti-
mation procedure. Previously observed prices shall not
be regarded as estimated prices unless they can be
shown to be appropriate estimates.

13. An “elementary product group” means a set of product-
offers that are sampled in order to represent one or
more consumption segments in the HICP.

14. An “elementary

aggregate” means
an elementary
product group stratified, for instance by regions, cities
or outlet types and so refers to the level at which
observed prices enter
the HICP. Where elementary
product groups are not stratified, the terms “elementary
product group” and “elementary aggregate” shall have
the same meaning.

The compiled HICP is a sample statistic which shall
1.
represent the change in prices, on average over the target
universe, between the calendar month of the current index
and the period to which it is compared.

2.
The set of all transactions in the statistical universe can
be exhaustively divided into subsets corresponding to the
product-offers to which these transactions pertain. They
shall be classified according to the four-digit categories and
sub-categories given in Annex Ia, which derive from the
COICOP international classification and shall be known as
COICOP/HICP (classification of individual consumption by
purpose adapted to the needs of HICPs).

The HICP shall be computed using a formula which is

3.
consistent with the Laspeyres-type formula.

Consumption segments shall form the fixed objects in

4.
the index basket to be followed by the HICP.

5.
Prices used in the HICP shall be the purchase prices,
which are the prices paid by households to purchase indi-
vidual goods and services in monetary transactions.

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

4. Article 5 is replaced by the following:

The HICP shall provide a measure of pure change in

7.
prices, unaffected by quality change. It shall:

‘Article 5

Minimum standards
adjustment

for

replacements

and quality

1.

Quality adjustment methods shall be rated as follows:

(a) reflect the price change on the basis of the changed
expenditure of maintaining the consumption pattern of
households and the composition of the consumer popu-
lation in the base or reference period; and

(a) A-methods: those which are considered to deliver the
most reliable results, in terms of precision and bias;

(b) be constructed by making appropriate adjustments for
observed quality change. Quality adjustments
shall
serve the reliability, and in particular the representativity
of the HICP as a measure of pure price change.

Concerning quality change,

8.
the judgement shall be
based on due evidence of a difference between the specifi-
cation of a replacement product-offer and the product-offer
it replaced in the sample; That is, a difference in the product-
offers’ significant price-determining characteristics, such as
brand, material or make, that are relevant to the consumer
purpose in question.

A quality change does not arise when there is a compre-
hensive annual or less frequent revision of the HICP sample.
Its inclusion shall be made by establishing the appropriate
chain links. Revisions of the HICP sample do not remove the
need to introduce replacement product-offers without delay
in between two revisions.

9.
The representation of an elementary product group or
an elementary aggregate shall be defined by the expenditure
weight associated to it. Other weightings may be used within
elementary aggregates on the condition that the representa-
tivity of the index is ensured.

(b) B-methods: those which may deliver less precise or less
representative results than A-methods, but are never-
theless considered also acceptable. B-methods shall be
used in case A-methods are not applied; and

(c) C-methods: all other methods, which shall hence not be

used.

Standards concerning the rating of quality adjustment
2.
methods shall be developed and issued by the Commission
(Eurostat) after consultation at the SPC, following a case-by-
case approach and with due regard to aspects of cost-effec-
tiveness and the context in which they are applied.

The rating of quality adjustment methods does not preclude
the adoption of implementing measures on this subject in
accordance with Article 5(3) of Regulation (EC) No 2494/95.

3.
A- and B-methods shall be deemed to be appropriate
quality adjustment methods. HICPs for which appropriate
quality adjustments are made shall be deemed to be
comparable. Other things being equal, A-methods shall be
given the preference over B-methods.

“Reliability” shall be assessed according to “precision”,
10.
which refers to the scale of sampling errors, and “represen-
tativity” which refers to the lack of bias.’

In the absence of appropriate national estimates,
4.
Member States shall use estimates based on information
provided by the Commission (Eurostat) where these are
available and relevant.

3. In the second paragraph of Article 4 the words ‘Article 2(b)’

shall be replaced by the words ‘Article 2(5)’.

5.
In no case shall a quality change be estimated as the
whole of the difference in price between the two product-
offers, unless this can be justified as an appropriate estimate.

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6. Where no appropriate estimates are available, price
changes shall be estimated as the difference between the
replacement price and that of
it has
replaced.

the product-offer

7.

Replacement product-offers:

(a) shall be either

“essentially equivalent”,
if no quality
change is observed between the replacement product-
replaced in the sample, or
offer and the one it
“equivalent
adjustment”,
quality
quality
adjustment is necessary for an observed quality change
between the replacement product-offer and the one it
replaced in the sample;

by

if

a

(b) shall be selected from the same consumption segments
as the replaced ones, so as to maintain the representation
of consumption segments;

(c) shall not be selected according to similarity of price. This
shall in particular apply where replacements have to be
made after goods or services have been offered at
reduced prices.’

Article 2

Entry into force

This Regulation shall enter into force on the 20th day following
its publication in the Official Journal of the European Union.

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

Done at Brussels, 14 November 2007.

For the Commission

Joaquín ALMUNIA
Member of the Commission