Harmonized Index of Consumer Prices (HICP)
Candlefocus EditorThe HICP tracks consumer price inflation based on all goods and services produced for the domestic market including food, energy, transport, durable and non-durable goods, and services such as rent, health and education, but excluding alcohol and tobacco. Prices are collected from retailers and service providers in each of the EU countries, and the data is then weighted according to the spending patterns of consumers in those countries.
The important HICP data released each month is the MUICP – the Monetary Union Index of Consumer Prices, which reflects inflation in the Eurozone. This is closely watched by investors and financial markets across the world, as the European Central Bank uses it to calibrate its pursuit of price stability. The ECB has set a medium-term inflation target of 2%, and if the MUICP exceeds this level, it will work to reduce inflationary pressure; conversely, if inflation falls, then the ECB may look to increase liquidity in order to increase demand.
The HICP is a useful indicator for companies seeking to determine the best pricing strategies for their businesses, as it reflects changes in the purchasing power of consumers in the Eurozone and the EU. It is particularly valuable for businesses dealing in durable goods and services, as rises in the HICP will affect the pricing models for businesses seeking to maximize their sales.
The HICP is also an essential measure of economic confidence in the UK, as it reflects how well the governments of the EU countries are able to manage their spending in order to keep inflation in check. As such, it is monitored closely by financial markets and helps to shape Europe's monetary policy.
Overall, the HICP is a critical economic indicator used to measure inflation in the Eurozone and the European Union and to guide the ECB's monetary policy. It has become a hugely important data of the Eurozone’s economic health and performance over recent decades.