Definition of HICP

The European Central Bank monitors its success in controlling inflation in the eurozone by the so-called harmonised index of consumer prices (HICP).

The HICP is a common measure of inflation across the eurozone. It replaced each country’s longstanding national consumer prices index, or CPI. Common definitions were necessary to judge whether countries could be judged to have satisfied the Maastricht criteria for monetary union that included inflation.

But while the harmonised index produced broadly comparable measures of inflation, some items were missing - the major one being the costs associated with owner-occupation.

But as in other economies there has been much debate about whether such inflation measures should include owner-occupiers’ housing costs. The omission was described in a Eurostat manual on consumer prices, published in June 2008, as “the major shortcoming” in the currently published CPIs.

The ECB shares that perspective; home owners could see their housing costs rise substantially without the effects showing up in headline inflation measures. The purchase price of the property is one part of it but there was also an enthusiasm to include buying and selling costs, mortgage expenses, legal fees and some taxes. [1]

The wider implications of house price inflation

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