Everything about The Harmonised Index Of Consumer Prices totally explained
The
Harmonised Index of Consumer Prices (
HICP) is an indicator of inflation and price stability for the
European Central Bank (ECB). It is a weighted average of price indices of member states in order to show what the
consumer price index does for the entire
Eurozone. One goal of the ECB in fighting to keep price stability is to keep the HICP below 2% for the medium term. In order to do that, the ECB can control the short term
interest rate through
Eonia, the European over night index average, which affects market expectations.
The HICP differs from the
US CPI in two primary aspects. First, the HICP attempts to incorporate rural consumers into the sample while the US maintains a survey strictly based on the urban population. In actuality, the HICP doesn't fully incorporate rural consumers since it only uses rural samples for creating weights; prices are only collected in urban areas. The HICP also differs from the US CPI by excluding owner-occupied housing from its scope. The US CPI calculates "rental-equivalent" costs for owner-occupied housing while the HICP contents such expenditure as investment and excludes it. The
Bureau of Labor Statistics, the producer of the US CPI, has recently calculated an experimental index designed for direct comparison with the HICP.
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