What is 'Harmonized Index of Consumer Prices (HICP)'

The Harmonized Index of Consumer Prices (HICP) is a list of the final costs paid by European consumers for the items in a basket of common goods.

BREAKING DOWN 'Harmonized Index of Consumer Prices (HICP)'

The Harmonized Index of Consumer Prices (HICP) is produced by each European Union (EU) member state to measure inflation and to guide the European Central Bank  (ECB) in formulating monetary policy. Each country's HICP measures the change over time in the prices of a basket of goods and services acquired, used or paid for by households within that country. The prices measured by the HICP come from the prices of representative goods from urban and rural pricing patterns. The index tracks the prices of goods such as coffee, tobacco, meat, fruit, household appliances, cars, pharmaceuticals, electricity, clothing and many other widely used products. Owner-occupied housing costs are excluded from the HICP. The HICP is also used as the basis of the Monetary Union Index of Consumer Prices (MUICP), an aggregate measure of consumer inflation. The main goal of the ECB is price stability, which it defines as an annual HICP rate in the euro area of 2 percent or less. The HICP and MUICP data releases are critical for the ECB in terms of how it sets monetary policy in the euro area. MUICP is also referred to as euro area HICP.

MUICP aggregates HICPs

The Monetary Union Index of Consumer Prices (MUICP) is calculated using the weighted average of the HICP from each country in the euro area. Each country's HICP measures the change over time in the prices of a basket of goods and services acquired, used or paid for by households within that country. All EU countries employ the same HICP methodology, enabling them to be compared to each other and aggregated to calculate the MUICP.

Eurostat collects data provided by the national statistics agency of each member state on price changes and the consumption patterns of consumers within its economy. The HICPs encompass the full range of final consumption expenditure for all types of households in order to give a timely and relevant picture of inflation, according to Eurostat. The baskets of consumer goods and services and the weightings of each country are updated annually to reflect current spending patterns. Each country's weight represents its share of total household final monetary consumption expenditure in the euro area. The MUICP was launched in 1998 with the 11 EU states that were to become members of the euro area when the euro currency launched on 1 January 1999.

RELATED TERMS
  1. Harmonic Mean

    The harmonic mean is an average which is used in finance to average ...
  2. Market Basket

    A market basket is a subset of products or financial securities ...
  3. Basket

    A basket is a unit of at least 15 stocks that are used in program ...
  4. Price Inflation

    Price inflation is the increase in a collection of goods and ...
  5. Household Expenses

    Household Expenses are a per-person breakdown of general living ...
  6. European Customs Union

    The European Union Customs Union ensures the tariff-free movement ...
Related Articles
  1. Trading

    Harmonic Patterns In The Currency Markets

    Learn how to take geometric price patterns to the next level by using Fibonacci numbers to predict movements in the forex market.
  2. Insights

    Consumer Confidence Index

    The Consumer Confidence Index is the result of a monthly survey of 5,000 U.S. households by the Conference Board that measures how optimistic or pessimistic consumers are about the economy's ...
  3. Insights

    A Primer On Inflation

    Inflation has a negative connotation, but is it all bad or does it offer some tangible benefits?
  4. Trading

    ECB Rate Cuts, Possible European QE Lift Stocks

    Following Thursday's meeting of the Governing Council of the European Central Bank (ECB) in Malta, President Mario Draghi held a press conference in which he hinted that further interest rate ...
  5. Investing

    The Pros and Cons of a Weak Euro

    The lingering Eurozone crisis has caused the euro to decline against the U.S. dollar. Who are the real winners and losers if the ECB adopts Quantitative Easing?
  6. Investing

    European Banks: Growth in 2016?

    Understand the potential growth drivers of the European banking sector and whether 2016 will be a year of growth or continued stagnation.
  7. Trading

    How CPI Affects the Dollar Against Other Currencies

    The Consumer Price Index is a broad measure of inflation, and inflation can have a dramatic impact on a currency's value against rival currencies.
  8. Trading

    4 Key Indicators That Move The Markets

    Do you rely on indicators to make an investment move? Find out these key economic and market indicators to watch and react to market movements.
  9. Insights

    Core Inflation Highest in Over Four Years

    The core items of Consumer Price Index, rose 0.3% between December and January and 2.2% increase year-over-year, the largest increase since June 2012.
RELATED FAQS
  1. What are some limitations of the consumer price index (CPI)?

    Explore some of the basic limitations of the widely used economic indicator, the consumer price index, or CPI, and examine ... Read Answer >>
  2. How does revolving credit differ from a general line of credit?

    Examine the consumer goods sector, which accounts for nearly one-third of consumer spending, and learn which goods account ... Read Answer >>
  3. How are industrial goods different from consumer goods?

    Understand the difference between industrial goods and consumer goods, and learn the different types of industrial goods ... Read Answer >>
  4. What is the relationship between the PPI and the CPI?

    CPI and PPI calculate the change in price of a set of goods and services, but there are two fundamental differences between ... Read Answer >>
  5. Which economic factors most affect the demand for consumer goods?

    Understand how key economic factors such as inflation, unemployment, interest rates and consumer confidence affect the level ... Read Answer >>
  6. Is the consumer price index (CPI) the best measure of inflation?

    Discover how the CPI is one of the most used indexes to measure inflation, but due to its limitations, the PPI and GDP deflator ... Read Answer >>
Trading Center