Harmonized Index of Consumer Prices

What is Harmonized Index of Consumer Prices (HICP)?

The Harmonized Index of Consumer Prices system is used as a common method to indicate the price patterns and Inflation in the European states. This method helps the European Central Bank to ascertain the prices of the goods and the current inflation. The main purpose of implementing this inflation indicator is to maintain the stability in the prices and to ensure that it does not go beyond 2%. The concept is commonly known as CPI in the US.

In other words, the Harmonized Index of Consumer Prices refers to the total price the European customers have paid for the consumer goods and services. Now, this method is followed by every European state that has adopted the Euro. The technique is specifically used to help and guide the European Central Bank in planning future monetary strategies.

As mentioned before, each European nation participates in this inflation control measure. The HICP of all the European states is recorded to find out the changes in the prices of the goods and services over time. Basically, it is done to observe how the price of consumer goods changes in a specific period.

An Overview of the Harmonized Index of Consumer Prices

The goods included in this methodology are the most common consumer items, including but not limited to, tobacco, pharmaceuticals, clothes & accessories, household appliances, electronics, meat, fruit, coffee, and beverages. Note that the housing and accommodation prices are not included in the HICP. Not only does it help the European Central Bank figure out the pricing patterns and the changes, but it is a common way to detect and control inflation.

The main objective of the government is to bring price stability in the European nations by bringing the HICP rate below or equal to 2%. The data obtained from this methodology is crucial for the European Banks and Government. They use these insights for setting future Financial goals. Based on these insights, they plan the best monetary policy for the European nations.

Calculating MUICP

Once the HICP of each European nation is calculated, its aggregate is used to measure MUICP (Monetary Union Index of Consumer Prices). In each state, the Harmonized Index of Consumer Prices of a basket of consumer products is calculated. The rate of all the European cities is calculated and compared. The aggregate of this is used to find out the average Harmonized Index of Consumer Prices. Now, the total average of the HICP measures the Monetary Union Index of Consumer Prices.

The national agency gathers the data from each nation and supplies it to the Eurostat. This data is used to ascertain the consumption pattern as well as changes in the prices of consumer goods in the European Economy. This method indicates the final expenditure on goods every year. It also helps the banks and European governments get a clear picture of inflation. The data concerning the Harmonized Index of Consumer Prices are updated every year to show the current inflation and consumption pattern in European states.