UNECE Workshop on Consumer Price Indices Istanbul, Turkey,10-13 October 2011

1. UNECE Workshop on Consumer Price IndicesIstanbul, Turkey,10-13 October 2011 Session 11: HICP overview Presentation by Carsten Boldsen, UNECE

2. Different uses and purposes of the HICP • Economic convergence • Policy evaluation and monitoring • Monetary policy • Economic analysis

3. The development of the HICP • Discussions started in 1993 • Framework Regulation in 1995 • First release of HICP data for 1996 • Further “implementing measures” 1996 to 2010 • Harmonisation continues

4. The regulations The Framework Regulation on HICP (1995) • to be calculated each month in EU Member States • based on prices of goods and services available for purchase in the member states • excludes OOH, health and education and social protection

5. The regulations Implementing measures (1996) • all products with a weight of at least 1/1000 should be covered • elementary indices may not be calculated as Carli indices as default • explicit quality adjustments must be made when possible. The whole of a price change should never be ascribed to quality differences without justification • the sample must be sufficiently and be maintained • missing price observations – carrying forward the last observation more than 2 months is forbidden • aggregation according to COICOP

6. The regulations Quality of weights (1997) • weights should be sufficiently reliable to ensure international comparison • weights should relate to a period not more than seven years before the index year • each year the weights should be checked to see if important changes have taken place and adjusted when necessary

7. The regulations Coverage of goods and services (1998) • Household Final Monetary Consumption expenditure (HFMCE) on goods and services (ESA) • HICP shall be based on purchaser prices- the prices actually paid by the households • price changes from a zero price to a positive price, and vice versa, should be included in the HICP

8. The regulations Geographic and population coverage (1998) • Geographical coverage: purchase of households (HFMCE) on the economic territory of the country, irrespective of nationality or residence status • Population coverage:all households within the territory of a country, including all high and low income households and population living in institutional households.

9. The regulations Treatment of tariffs (1998) • tariff prices: prices of goods or services differentiated according to, for example, the time of purchase or the type of household, e.g. - transport charges - telephone and internet charges • use prices and appropriate weights • subindices that include tariffs should reflect the price change of maintaining the consumption pattern prior to the change in the tariff

10. The regulations Treatment of insurance (1999) • the price of insurances is the gross insurance premiums paid by the households (gross prices) • the weights of insurances shall reflect the so-called ‘insurance service charge’ – i.e. the gross premiums less the claims paid out (net weights)

11. The regulations Health, education and social protection (1999) • Purchaser prices net of any reimbursements from government, social security administrations or other non-profit institutions • changes in purchaser prices because of changes in the rules determining them shall be included • changes in purchaser prices because of changes in purchasers’ incomes shall be shown as price changes in the HICP (income depending prices)

12. The regulations Treatment of price reductions (2000) • purchaser prices for HICP should take account of reductions in prices, for example sales prices • price reductions of goods or services which are likely to be available again at normal prices should be included in the HICP

13. The regulations Service charges proportional to transaction values (2001) • for some services, the purchaser price is linked to the transaction value – for example some charges for financial or legal services • Prices proportional to the value of the transaction should reflect the price change of maintaining the consumption pattern • changes in purchaser prices because of changes in the value of the transaction (keeping the basked fixed) shall be included in the index

14. The regulations Revisions of the HICP (2001) • the official published HICP series may be revised in the following month • Mistakes shall be corrected • new or improved data may lead to revisions • Changes to the rules for the production of the HICPs do not require revisions, but the impact on the results shall be assessed

15. The regulations Price collection period (2006) • price collection across at least one working week at or near the middle of the month • where products typically show sharp and irregular price changes, price collection shall take place over a period of more than one working week. This apply in particular to: - energy products - fresh food, such as fruit and vegetables

16. The regulations Quality adjustment (2007) • QA methods divided in three groups on case-by-case basis: A: the best methods B: acceptable C: should not be used • Link-to-show-no-change is only allowed if the method can be justified to be a good estimate. • If no information is available, the whole of the price change should be included in the index

17. The regulations Treatment of seasonal products (2009) • “Strict annual weights”: Weights at all levels are kept constant during the year. Prices in out-of-season months are estimated • “Class-confined seasonal weights”: Weights are set to zero in out-of-season months so there is no need to impute prices for missing products. The total weight of the COICOP class or group should be constant through the year • empirically, the two methods can be expected to deliver comparable results at the level of the overall CPI

18. The regulations Weights (2010) • members states should review and update weights for sub-indices for important and sustained developments annually on basis of National accounts, Household Budget Surveys and other reliable sources • detailed weights such as for elementary indices, should not be more than 7 years old