Harmonized indices of consumer prices
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Harmonized indices of consumer prices
0.2 Subject area
Prices and Consumption
0.3 Responsible authority; office, division, person etc.
Lára Guðlaug Jónasdóttir
Price Statistics Department
telephone: 528 1200
0.4 Purpose and history
Purpose: To measure changes to prices within the European Economic Area (EEA) in a standardised way and thus to facilitate comparison of inflation between member states.
History: In the Maastricht treaty of 1991 the European Monetary Union (EMU) was founded and it was decided that a common currency, the Euro, should be brought into being. The participating states had to fulfill certain prerequisites to be allowed to participate in the Union. One of those was on the comparability of inflation data. It was thought necessary to use a harmonized way of measuring inflation within the European Union. Already in 1993 extensive steps towards harmonization were taken in preparation for the calculation of the harmonized index. Work towards this is still being carried out and Iceland has participated fully in this process from the onset. Following this preparatory work the European Union has published instructions and legislated on what methods are to be used in the calculation of the index. The harmonized consumer price index for the EEA has been calculated monthly from January 1997 in 17 states, and from 2002 for 27 states when the 10 new EU member states entered the project. The index was set at 100 compared with year 1996 and was calculated back to January 1995. In January 2006 the index levels were rescaled, changing the index reference period to 2005=100
0.5 Users and application
The European Central Bank uses the harmonized index in evaluating price levels in Europe.
Used to diagnose price convergence within the Eurozone.
Used in Iceland in to compare inflation between countries.
The basis of the harmonized consumer price index is the same as that of the Icelandic consumer price index, that is information from household expenditure surveys, which Statistics Iceland carries out regularly. A survey was carried out in 1995 and the index from 1997-2001 was largely based on its results. From the year 2000 household expenditure surveys are carried out on a yearly basis and from March 2002 the results are used for annual rebasing.
The harmonized index is mostly a sub-index of the Icelandic consumer price index, though there is a difference in their scopes. The most significant difference is that owner occupied housing is not included in the harmonized index. Expenses of foreign tourists and the expenses of those living in institutions are included in the weight of the harmonized index but not that of the Icelandic consumer price index.
Information on prices of goods, which is collected monthly, is used to measure price changes. Every month approximately 21,000 prices of goods and services are registered. The interviewers of Statistics Iceland collect information about pricing in grocery and clothing stores. Other information is collected via fax, email and telephone interviews with companies as well as via the internet.
0.7 Legal basis for official statistics
Concerning the harmonized consumer price index the following laws in European regulation are valid. In addition to law, guidelines have been accepted on a few matters, eg. on lowerings of prices on goods, quality adjustments and the treatment of computers.
Concerning the harmonized indices: Council Regulation (EC) No 2494/95 of 23 October 1995 concerning harmonized indices of consumer prices (OJ L 257, 27.10.1995, p. 1)
Concerning initial implementing measures: Commission Regulation (EC) No 1749/96 of 9 September 1996 on initial implementing measures for Council Regulation (EC) No 2494/95 concerning harmonized indices of consumer prices (OJ L 229, 10.9.1996, p. 3)
Concerning sub-indices: Commission Regulation (EC) No 2214/96 of 20 November 1996 concerning harmonized indices of consumer prices: transmission and dissemination of sub-indices of the HICP (OJ No L 296, 21.11.1996, p. 8)
Concerning quality of weightings: Commission Regulation (EC) No 2454/97 of 10 December 1997 laying down detailed rules for the implementation of Council Regulation (EC) No 2494/95 as regardsminimum standards for the quality of HICP weightings (OJ L 340, 11.12.1997, p. 24)
Concerning the coverage of the index regarding goods and services: Council Regulation (EC) No 1687/98 of 20 July 1998 amending Commission Regulation (EC) No 1749/96 concerning the coverage of goods and services of the harmonized index of consumer prices (OJ L 214, 31.7.1998, p. 12)
Concerning geographic and population coverage of the index: Council Regulation (EC) No 1688/98 of 20 July 1998 amending Commission Regulation (EC) No 1749/96 concerning the geographic and population coverage of the harmonized index of consumer prices (OJ L 214, 31.7.1998, p. 23)
Concerning the treatment of trariffs in the index: Commission Regulation (EC) No 2646/98 of 9 December 1998 laying down detailed rules for the implementation of Council Regulation (EC) No 2494/95 as regards minimum standards for the treatment of tariffs in the Harmonized Index of Consumer Prices (OJ L 335, 10.12.1998, p. 30)
Concerning the treatment of insurance in the index: Commission Regulation (EC) No 1617/1999 of 23 July 1999 laying down detailed rules for the implementation of Council Regulation (EC) No 2494/95 - as regards minimum standards for the treatment of insurance in the Harmonized Index of Consumer Prices and modifying Commission Regulation (EC) No 2214/96 (OJ L 192, 24.7.1999, p. 9)
Concerning amdendments to sub-indices: Commission Regulation (EC) No 1749/1999 of 23 July 1999 amending Regulation (EC) No 2214/96, concerning the sub-indices of the harmonized indices of consumer prices (OJ L 214, 13.8.1999, p. 1)
Concerning rules for the treatment of education and health service in the index: Council Regulation (EC) No 2166/1999 of 8 October 1999 laying down detailed rules for the implementation of Regulation (EC) No 2494/95 as regards minimum standards for the treatment of products in the health, education and social protection sectors in the Harmonized Index of Consumer Prices (OJ L 266, 14.10.1999, p. 1)
Concerning the timing of entering purchaser prices into the index: Commision Regulation (EC) No 2601/2000 of 17 November 2000 laying down detailed rules for the implementation of Regulation (EC) No 2494/95 as regards the timing of entering purchaser prices into the Harmonized Index of Consumer Prices (OJ L 300, 29.11.2000, p. 14)
Concerning minimum standards for treatment of price reduction: Commision Regulation (EC) No 2602/2000 of 17 November 2000 laying down detailed rules for the implementation of Regulation (EC) No 2494/95 as regards minimum standards for the treatment of price reductions in the Harmonized Index of Consumer Prices (OJ L 300, 29.11.2000, p. 16)
Concerning minimun standards for the treatment of service charges proportional to transaction values: Commision Regulation (EC) No 1920/2001 of 28 September 2001 laying down detailed rules for the implementation of Regulation (EC) No 2494/95 as regards minimum standards for the treatment of service charges proportional to transactions values in the Harmonized Index of Consumer Prices and amending the Regulation (EC) NO 2214/96 (OJ L 261, 29.9.2001, p. 46)
Concerning minimum standards for revisions of the harmonised index of consumer prices: Commision Regulation (EC) No 1921/2001 of 28 September 2001 laying down detailed rules for the implementation of Regulation (EC) No 2494/95 as regards minimum standards for revisions of the harmonised index of consumer prices and amending the Regulation (EC) NO 2602/200 (OJ L 261, 29.9.2001, p. 49)
Concerning minimum standards for price collection periods in order to improve the comparability, reliability and relevance of the harmonised index of consumer prices: Council Regulation (EC) No 701/2006 of 25 April 2006 laying down detailed rules for the implementation of Regulation (EC) No 2494/95 as regards the temporal coverage of price collection in the HICP (will take effect in the index for January 2008).
0.8 Response burden
As Statistics Iceland itself to a significant extent collects information on pricing through visits to stores the response burden is little or none for stores. Some effort is required from those who provide information via fax or over the internet, though questions in these cases are usually not very extensive. Similarly those who are interviewed via telephone are asked few questions. The response burden is therefore not heavy. Individual entities provide other types of information, for example on itemized weights for different types of goods and services. That information is usually fairly extensive and companies may need to go through some effort in providing that.
0.9 EEA and EU obligations
See chapter 0.7
1.1 Description of content
The harmonised index of consumer prices is a Lowe fixed base index chained with yearly links, in December each year. The index has significant features of a cost of living index as it is corrected for substitution at the elementary level by using the geometric mean. Chain weights are used to correct outlet substitution and quality adjustment used for correcting shopping substitution bias.
The method of classification used is in accordance with the international classification system COICOP, which is part of the laws pertaining to the index.
1.2 Statistical concepts
In a fixed base price index consumption patterns are kept constant and usually the index is of Lowe type. Special cases of a Lowe index are Laspeyres with an older base or Paasche index with a new base. Superlative indices are symmetric and reflect theoretically a true cost of living index by taking into consideration both old as well as new base.
Five methods are used in the calculation of the harmonized index of consumer price:
Relative of geometric mean prices (Jevon) (approx. 47% of the total expenditure base)
The weighted relative of geometric mean prices on groceries (approx. 21%)
Laspeyres or average of price relatives (Duot) (approx. 25%)
A superlative index (Fisher) (approx 2%)
Indices (approx 5%)
2.1 Reference periods
Price collection takes place for at least one week in the middle of a month (from January 2008 onwards). Until year 2007 the prices were collected the two weekdays of the month. The time is prescribed by law pertaining to the consumer price index.
2.2 Process time
The processing time in Iceland follows the processing of the consumer price index and the harmonized consumer price index is calculated along with the consumer price index. The time of month during which price collection takes place varies between states. The processing time is shorter in Iceland than in all the other states. When information has been sent to Eurostat the processing takes place: the indices are weighted together and the overall indices calculated.
This process takes a few days.
The index is published about the 15th of the month after the relevant month.
The index series are updated on the Statice' website at the time of the news release in Brussels, according to the advance release calendar.
2.4 Frequency of releases
The index is published every month
3.1 Accuracy and reliability
A yearly review to the base of the index and annual results from the expenditures survey ensure the accuracy of measurements as well as the high reliability of the index.
A very extensive price collection every month and a high level of itemization of groups included in the measurement further contribute to accuracy.
3.2 Sources of errors
In the calculation of an index various errors can arise:
Sampling errors (coverage errors, non-response errors): If the goods available or the sampled companies do not reflect the population accurately.
Measurement errors: Can occur during price collection for example due to inaccurate product descriptions, inaccurate marking in stores and insufficient or wrong answers from respondents.
Processing errors: Errors can occur during the entering and processing of data.
Methodological errors: Different methods of calculating indices cause different errors. Superlative indices are symmetric and thus include quantities from two different time periods. The problem is that information about weights in the current period is seldom available until afterwards and it is difficult to calculate them timely. They are different from fixed base indices, which either use older weights (Laspeyres) or new weights (Paasche). Bias in a cost of living index is based on an index value, which is compared to a theoretically true cost of living index in each period. Superlative indices reflect a true cost of living index and a Laspeyres index is normally upwards biased, while a Paasche index is downwards biased.
Errors due to quality change: If quality change to goods or services is not taken into consideration when evaluating price change inflation can be over- or underestimated.
Errors due to substitution: For example if the consumption patterns of households change in such a way that more is bought from outlets where prices are low, but the sample of outlets remains unchanged, so that reduction in prices due to this is not measured in the index, an error can occur due to substitution in household shopping that need to be corrected. Outlet substitution occurs if a good is not available in a store and has to be bought in another outlet, and care is taken of that in the index calculation. If weights for goods remain unchanged but consumption patterns change an error can occur due to item substitution. Such substitution can be at the elementary level and also between basic headings and an example of this is if the price of fish rises much but the price of meat drops. Then household consumption will move to meat from fish (assuming normal price elasticity) but this change to consumption is not measured immediately in the fixed base index. However, a geometric mean corrects for item substitution at the elementary level and with frequent rebasing errors due to substitution in indices are significantly reduced.
3.3 Measures on confidence limits/accuracy
No specific measurements on confidence limits and accuracy in the harmonized consumer price index have been carried out
4.1 Comparison between periods
Very good within index base time. Index numbers comparable between elementary aggregates by chaining. Changes to methodology and significant changes to classification system can reduce comparability over a longer period of time.
4.2 Comparison with other statistics
The index is calculated in all EEA member states, which makes comparisons of inflation between these countries possible.
4.3 Coherence between preliminary and final statistics
Eurostat publishes a forecast of the index about 3 weeks before its publication. This forecast is based on early price information from nine euro-zone member states, representing approximately 95% of the euro-zone total expenditure weight.
5.1 Forms of dissemination
- Website of Statistics Iceland
- Press releases from Eurostat
5.2 Basic data; storage and usability
Basic data is stored by Statistic Iceland and is not accessible to anyone apart from employees of the index department. Other data is stored by Eurostat.
Reports are published on the web and in an annual issue of the Statistical Series.
5.4 Other information
Further information about the harmonised consumer price index is provided by
Lára Guðlaug Jónasdóttir
telephone: 528 1200
© Hagstofa �slands, �ann 20-3-2013