Introduction to HICP
The HICP is an economic indicator constructed to measure the changes of prices over time of consumer goods and services acquired, used or paid by households.
The HICP is calculated according to a harmonized approach and methodology laid down by a series of regulations of EU.
Conceptual basis and coverage of the HICP
HICP aims to cover the final consumption expenditure of all types of households in order to provide a timely and clear view of inflation.
Conceptually, HICP is more a ‘Laspeyres-type price index’ rather than a ‘cost of living index’. Consequently, HICP is not of the same meaning as the cost of living. In general, HICP only measures the change in the prices of a given (fixed) cost model. The cost of living is of a wider significance since is not only influenced by prices but also by the quantities that are bought-consumed and by the luxuries/needs of the households.
The geographical coverage of the HICP covers the prices of goods and services in Nicosia, Larnaca, Limassol and Paphos. For each city, the fluctuations in the product prices each month are weighted according to their population. Specifically, the weights for the four districts are: Nicosia 42%, Limassol 30%, Larnaca 18% and Paphos 10%.
The population coverage of the HICP includes expenditure on both households that reside in Cyprus or are going to live in Cyprus for at least one year and the tourists.
The prices measured are those actually paid by consumers for the purchase of specific goods and services, and they include various taxes, such as the Value Added Tax and excise duties. For the calculation of the Index end-of-season sales prices are taken into account as well as special offer prices which are available for the general public and have no restrictions.
The HICP does not include interest expenses and other credit charges, since they are not considered as consumer expenditures.
Basic points for the HICP
– The basket of goods and services and weighting
The compilation of HICP is based on goods and services listed in the shopping basket, which are derived primarily from the Household Budget Survey conducted by the Statistical Service of Cyprus (every 5 years or so).
The Household Budget Survey records the daily expenses of households and thus determines how much they spend and on what goods and services. The shopping basket should be revised in order to reflect current consumption patterns of households. There is no uniform basket applying to all European countries.
Goods and services included in the HICP have their own weight. The weight of a specific good or service shows the percentage of expenditure, for its purchase from households, compared to the total expenditure for all goods and services in the HICP. The weights do not reflect the quantities consumed by households on specific goods and services. Up to 2011, the calculation of the weights was mainly based on the data of the Household Budget Survey. From 2012 onwards, the weights are calculated on the basis of National Accounts data.
To minimize the potential risk of non-comparability and following Eurostat´s regulation, weights need to be revised every year.
– Collection of price data
The price collection is mainly carried out by personal visits to stores and retail outlets, and supplemented by central collection through telephone and the Internet.
About 850 goods and services from all categories of expenses compose the shopping basket. Every time the index is revised, the list of goods and services is also enriched with new items in order to reflect better the consumption habits of households. It is clarified that some of the “new items” are not really “new” goods and services but were included in the new shopping basket as they have acquired enough weight compared to the total household expenditure.
The prices of 850 goods and services are recorded once every month, except for some seasonal products such as vegetables, fruits, meat and fuel, whose prices are collected every week (every Thursday).
For each item 3 price quotations are recorded, i.e. from three different outlets in each city, while for fruits and vegetables 8 prices are recorded and for fuel, prices are collected from service stations of all companies operating in Cyprus. All prices, except those of fruits and vegetables and fuels, are recorded at predetermined dates and over a period of 3 weeks every month. Prices are collected from about 1400 retail outlets and 700 dwellings (for the rents).
Goods and services of the HICP are classified into 12 categories and are categorized based on the COICOP classification (as specified by the European Statistical Service):
1. Food and non-alcoholic beverages
2. Alcoholic beverages and tobacco
3. Clothing and footwear
4. Housing, water, electricity and gas
5. Furnishings, household equipment and supplies
9. Recreation and culture
11. Restaurants and hotels
12. Miscellaneous goods and services
– Publication of HICP
HICP and the indices for the 12 main categories of goods and services are published on Tuesday following the first Thursday of each month (publication date of CPI). This date is already pre-announced in the release calendar on the website of the Statistical Service of Cyprus. The publication of the HICP is made with an announcement to the media, in the Official Government Gazette and on the website of the Statistical Service of Cyprus.
The HICP is also published on the website of the European Statistical Office (EUROSTAT), every month according to the announced schedule – typically, 17 to 19 days after the reference month.
Differences between Consumer Price Index (CPI) and Harmonised Index of Consumer Prices (HICP)
The main differences between HICP are the following:
- The treatment of owner-occupied housing. Price changes for the owner-occupied housing are currently excluded from HICP, while in the CPI, based on 2005 = 100, were only partly included between 2005 and 2010. Since January 2011 price changes for the owner-occupied housing have been excluded from CPI.
- The coverage of households. HICP covers all households΄ expenditures taking place within the country, whether those households actually live in the country or whether they are merely visiting the country and covers institutional households as well. On the other hand, CPI records consumption expenditures by resident households only.
- The revision of the weights. The weights of HICP are being revised annually whereas the weights of CPI are revised every five years. Additionally, up to 2011 the computation of the weights of both indices was mainly based on the data available by the Household Budget Survey. From 2012 onwards, the weights of the HICP are calculated on the basis of National Accounts data.