The Governing Council of the ECB has defined price stability in terms of the overall Harmonised Index of Consumer Prices (HICP) for the euro area. The conceptual work on the construction of this index is carried out by the European Commission (Eurostat) in close liaison with the National Statistical Institutes. As important users, the ECB and its predecessor, the European Monetary Institute, play an important role in this work.
The HICP data released by Eurostat are available from January 1995 onwards. Estimated backdata, which are not fully comparable with HICP data from 1995, are available for the overall HICP and its five main components from 1990. On the basis of the 2007 weighting of consumer spending, goods account for 59.1% and services for 40.9% of the HICP. The breakdown of the HICP into components serves above all to identify the different economic factors and driving forces which feed into consumer prices. For example, developments in the energy component are closely related to oil price movements. Food prices are broken down into processed and unprocessed food prices.
The harmonization measures introduced for the HICP in the different countries have been based on several EC regulations and guidelines agreed with the Member States. They concern – inter alia – the coverage of consumer spending, initial standards for the procedures of quality adjustment, the treatment of new goods and services and the revision of weights.
“Initial” refers to the fact that further harmonization is foreseen in several areas. Moreover, a detailed harmonized classification has been agreed for subindices, allowing a consistent comparison of price developments in detailed consumer spending subgroups across countries. As a result of the harmonization and statistical changes aimed at improving the precision, reliability and timeliness of the data, the HICP has become a high-quality price index of international standing and is an indicator that allows for comparisons across countries. Further improvements of quality adjustment procedures, sample surveys and the treatment of owner-occupied housing costs are planned.