Introduction and harmonization of the Harmonized Index of Consumer Prices (HICP) in EU A quick overview Twinning project: Activity 4.1- HICP Short term mission in Ukraine: September 2012 Martin Birger Larsen (Denmark), Olga Kosseyova (Slovakia) Twinning project: Development of new statistical methodologies and indicators in selected areas of statistics in line with EU statistical standards“, Activity 4.1 – Harmonized Index of Consumer Prices (HICP)

There are five criteria set out in the Treaty of Maastricht that must be met by European countries if they wish to adopt the European Union's single currency, the euro. They are: 1) inflation of no more than 1.5 percentage points above the average rate of the three EU member states with the lowest inflation over the previous year. 2) A national budget deficit at or below 3 percent of gross domestic product (GDP). 3) National public debt not exceeding 60 percent of gross domestic product. A country with a higher level of debt can still adopt the euro provided its debt level is falling steadily. 4) Long-term interest rates should be no more than two percentage points above the rate in the three EU countries with the lowest inflation over the previous year. 5) The national currency is required to enter the ERM 2 exchange rate mechanism two years prior to entry.euroinflationEUbudget deficitGDPdebtERM Introduction of the HICP in EU – Maastricht criteria

Introduction of the HICP in EU – Inflation criteria One of 4 convergence criteria required by the Maastricht Treaty (1993) for the countries wishing to enter the euro-zone concerns a stable price development measured by a Harmonized Index of Consumer Prices (HICP) in EU The aim of HICP – Accuracy, reliability and comparability The price stability of the countries entering the EU is also assessed on the basis of HICP

Introduction of the HICP in EU – Framework regulation The Maastricht Treaty from 1993 requires a stable price development measured by HICP The “HICP Framework Regulation – Council Regulation 2494/1995” of 1995 required that HICPs be produced and published, use a common reference base, provide common coverage of consumer goods and services, and share a common classification

Introduction of the HICP in EU – CR 2494/95 forms the legal basis for HICP compilation Legal Basis: Adoption in 1995 of a Council Regulation setting the legal basis for establishing a harmonised methodology for compiling comparable CPIs. The EU countries were required to calculate proxy-HICPs until 1997 and difficult areas were left out (owner-occupied housing, health, education and others). From 1997 onwards HICPs have been produced.

Introduction of the HICP in EU – after HICP framework regulation adopted in regulations were adopted, not all of them on new subjects, some of the new regulations amended and/or repealed the previous Regulations (by shortname in chronological order): Framework regulation (2494/1995)Framework regulation Initial implementing measures (1749/1996)Initial implementing measures Sub-indices (2214/1996)Sub-indices Weights (2454/1997)Weights Coverage of goods and services (1687/1998)Coverage of goods and services Geographic and population coverage (1688/1998)Geographic and population coverage Treatment of tariffs (2646/1998)Treatment of tariffs Treatment of insurance (1617/1999)Treatment of insurance Revised sub-indices (1749/1999)Revised sub-indices Treatment of products in the health, education and social protection sectors (2166/1999)Treatment of products in the health, education and social protection sectors Timing of entering purchaser prices (2601/2000)Timing of entering purchaser prices Treatment of price reductions (2602/2000)Treatment of price reductions Treatment of service charges (1920/2001 and corrigenda)Treatment of service chargescorrigenda Minimum standards for revisions (1921/2001 and corrigenda)Minimum standards for revisionscorrigenda Common index reference period (1708/2005)Common index reference period Temporal coverage of price collection (701/2006)Temporal coverage of price collection Sampling (1334/2007)Sampling Seasonal products (330/2009)Seasonal products Weights (1114/2010) :Weights

Introduction of the HICP in EU – active participation of the EU national statistician institutes Process: The programme to develop a harmonised methodology has relied on the active participation of the EU national statistical offices’ prices experts, co-ordinated and led by Eurostat. The HICP Working Group has been the platform for developing the project.

Introduction of the HICP in EU – approach to harmonization Approach: The legal framework has been built on over the years using a series of legally binding implementing regulations, each addressing one or more specific areas of methodology. The methods specified in these regulations can usually be applied with some flexibility, since comparability is required only with a tolerance of 0.1 percentage points at the level of the overall indices. The aim has been comparability of results rather than the application of uniform methods in all circumstances.

Introduction of the HICP in EU - Financing Financing: During the harmonisation project, the Commission has provided the Member States with financial support (2/3 of the implementation costs in the first 2 years). Twinning Project Short-term mission to Ukraine September 2012 Martin Birger Larsen – Statistics Denmark Olga Kosseyova – Statistical Office of the Slovak Republic

Introduction of the HICP in EU – useful links as regards HICP 1.Eurostat homepage: PRICES (HICP) - HICP dedicated section within „Selected statistics“ (left column of Eurostat home page) – please comp. the following slide 2.Eurostat homepage: Inflation (monthly) - information on HICP monthly inflation rate within „Most popular databases“ (left column of Eurostat home page) – please comp. the following slide 3.Eurostat homepage: Inflation rate (annual) - information on HICP annual inflation rate within „Most popular databases“ (left column of Eurostat home page) 4.United Nations Economic Commission for Europe: all presentations refering to HICP workshop that was held on 12th.May 2010 at The joint UNECE/ILO Meeting on Consumer Price Indices: ECB – education on inflation: Answers to inflation: