Page 25 - Policy Economic Report - November 2025

POLICY AND ECONOMIC REPORT
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Lessons from Economics

Harmonized Index of Consumer Prices (HICP)

The Harmonized Index of Consumer Prices (HICP) is a measure of inflation in the European Union (EU). It
reflects change over time in the prices paid by households for a representative basket of goods and
services. The European Central Bank (ECB) uses the HICP for the Eurozone comprising the 20 EU states
using the euro common currency to pursue its objective of price stability, defined as 2% annualized
inflation over the medium term.

Each EU state's statistical agency compiles a national HICP using a common methodology. Eurostat, a
department of the European Commission, then uses the national HICPs to calculate the Monetary Union
Index of Consumer Prices (MUICP), the aggregate HICP for the 20-country Eurozone area that serves as
the ECB's primary inflation gauge. Eurostat also calculates the European Index of Consumer Prices (EICP)
covering the entire European Union as well as the European Economic Area Index of Consumer Prices
incorporating data from EU trading partners Norway, Iceland, and Liechtenstein.

The flash estimate of the Eurozone's MUICP, published by Eurostat on the last working day of each month,
is a key economic release for financial markets.

Each country's HICP measures the change over time in the prices of a basket of goods and services
reflective of the spending patterns of that country's households. The index tracks the prices of goods such
as coffee, tobacco, meat, fruit, household appliances, cars, pharmaceuticals, electricity, clothing, and
many other widely used products and services.

Weighted Baskets

Eurostat calculates the Monetary Union Index of Consumer Prices using the weighted average of the HICP
from each country in the euro area based on the country's share of aggregate Eurozone consumer
spending.

The baskets of consumer goods and services and the weightings of each country are updated annually to
reflect the most recent spending patterns. The MUICP was first compiled in 1998 ahead of the euro
currency's launch on Jan. 1, 1999.

Key Features and Uses

• Comparability: The primary aim of the HICP is to provide a highly comparable measure of
consumer price inflation across different countries by using a single, harmonised methodology
and a common set of definitions.

• Monetary Policy: The ECB uses the HICP for the euro area (MUICP - Monetary Union Index of
Consumer Prices) as its main benchmark for monitoring inflation and making decisions on interest
rates.

• Convergence Criteria: The HICP is also used to assess whether prospective member states meet
the inflation convergence criteria required to adopt the euro.

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