What Is the Harmonized Index of Consumer Prices (HICP)?
The Harmonized Index of Consumer Prices (HICP) is a measure of inflation in the European Union (EU). It reflects change over time in the prices paid by households for a representative basket of goods and services. The European Central Bank (ECB) uses the HICP for the Eurozone comprising the 19 EU states using the euro common currency to pursue its objective of price stability, defined as 2% annualized inflation over the medium term.
- The Harmonized Index of Consumer Prices (HICP) is a measure of inflation in the Eurozone and the European Union.
- The HICP tracks consumer price inflation based on the spending patterns of consumers in each EU country, weighted according to that country's share of aggregate consumer spending.
- The most important HICP number for financial markets is the monthly flash estimate of the Monetary Union Index of Consumer Prices, reflecting inflation in the Eurozone comprising the 19 EU states using the euro currency.
- The ECB uses the MUICP to calibrate its pursuit of price stability, aiming for 2% inflation over the medium term.
Understanding the Harmonized Index of Consumer Prices (HICP)
Each EU state's statistical agency compiles a national HICP using a common methodology. Eurostat, a department of the European Commission, then uses the national HICPs to calculate the Monetary Union Index of Consumer Prices (MUICP), the aggregate HICP for the 19-country Eurozone area that serves as the ECB's primary inflation gauge. Eurostat also calculates the European Index of Consumer Prices (EICP) covering the entire European Union as well as the European Economic Area Index of Consumer Prices incorporating data from EU trading partners Norway, Iceland, and Liechtenstein.
The flash estimate of the Eurozone's MUICP, published by Eurostat on the last working day of each month, is a key economic release for financial markets.
Each country's HICP measures the change over time in the prices of a basket of goods and services reflective of the spending patterns of that country's households. 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 and services. Owner-occupied housing costs are excluded from the HICP, though the ECB's Governing Council recommended their inclusion in 2021.
Eurostat calculates the Monetary Union Index of Consumer Prices using the weighted average of the HICP from each country in the euro area based on the country's share of aggregate Eurozone consumer spending.
Each country's HICP measures the change over time in the prices of a basket of goods and services representative spending by that country's households.
The baskets of consumer goods and services and the weightings of each country are updated annually to reflect the most recent spending patterns.
The MUICP was first compiled in 1998 ahead of the euro currency's launch on Jan. 1, 1999.