Harmonised consumer price indices - on inflation measurement in Europe

The harmonised consumer price indices (HCPI) is an effective system for making consumer price indices in Europe more comparable. The HCPI was introduced in order to achieve an optimal measurement of inflation at the level of private households within the euro area and in Europe. In addition, the consumer price index of the euro area (CPI-EMU) is used for the assessment of price stability for the monetary policy strategy of the ECB. However, some methodological criticism can be expressed regarding the HCPI. As a chained index the HCPI - in contrast to the German consumer price index, which is designed according to the fixed-basis approach - cannot be consistently aggregated over the component indices. A splitting up into particularly interesting components is therefore not possible. In general, the HCPI cannot be interpreted, in general, as expenditure relationships or as averages of a method of price measurement. Furthermore, the inflation rate over the previous year can be influenced by changes in the expenditure weighting, which contradicts the concept of a pure price comparison even if the weights only change marginally from year to year.