HICP data reflects the prices of goods in the euro area, with the majority of the change in HICP reflecting shocks from outside the region. However, HICP inflation is not the only indicator to measure inflation in Europe. The HICP can also be broken down into items with a high and low import content. In the past years, low import content items have shown less significant increases in HICP inflation.
ECB’s long-term inflation target
The ECB’s new strategy is designed to keep inflation near the 2% long-term target, but it also recognizes that the economy may experience periods of moderately high or low inflation. During such periods, the ECB will use forceful and persistent measures to stabilize inflation expectations. This is contrary to the New Keynesian paradigm, which favors symmetric inflation targets. While the ECB’s long-term inflation target remains 2%, the Governing Council has a discretion to increase or decrease the rate of monetary policy.
The ECB’s projections of future inflation levels suggest that it will not hike interest rates until 2024. If the inflation rate reaches 2.4% in that period, a rate hike will be necessary. However, the ECB should look at the assumptions behind its projections and those of the national central banks. The interest rate projections are based on market expectations. Inflation is forecast to be 1.8 per cent in 2024. This target assumes that the ECB will remain on a policy of expansion, and that it will not tighten policy prematurely.
The ECB has asymmetric and symmetric targets, with asymmetric targets containing a potential ELB threat. An asymmetric inflation target may also lead to an inflation bias, which is contrary to the ECB’s objective of medium-term price stability. In asymmetric targets, inflation tends to be above the target, a situation that would be incompatible with the medium-term price stability objective.
HICP data for euro area
HICP data for the euro area are used to assess the inflation trend in a country. These statistics are calculated as a weighted average of changes in prices of various product groups. Prices are weighted based on the percentage of each product group’s share of total household expenditure. For the euro area, HICP data are compiled for 27 countries and include both the euro zone and the non-euro area.
The index is a common measurement of changes in prices for goods and services. Its composition reflects the differences in the costs of everyday items and durable goods, including food and housing. However, the composition of HICP may differ from country to country. HICP data for the euro area are based on a basket of goods which may not include home-ownership costs. This method enables comparisons between countries by comparing the overall inflation rates.
In order to calculate the HICP, Eurostat compiles data from national statistical institutes and Eurostat. It uses harmonised statistical methods to calculate the average change in consumer prices. The HICP serves as a gauge of the readiness of a country to join the eurozone. As such, it is essential to understand the HICP data before deciding if it is appropriate to join. This way, you will have a better idea of what to expect when you buy goods and services in the euro area.
Energy costs
In Europe, energy costs are increasing rapidly, making it harder for consumers to afford basic items, such as food and utility bills. In January 2022, the EU’s inflation rate rose to a record high of 5.6%, compared with 1.2% for the same period last year. While energy prices are always rising, this month’s surge is particularly high. Last month, energy costs rose by 44.7% compared to February, when prices rose by 32 percent. This spike is due to increased demand from recovering economies, and rising concerns over Russian invasion of Ukraine.
The rising costs of oil and gas are likely to continue to have a profound effect on inflation, especially in the Eurozone. The price of energy is a leading indicator of economic health, and the recent Russian war in Ukraine may hasten the transition towards renewable energy sources. However, as Europe continues to improve its energy efficiency, energy prices should continue to fall. Although it is unlikely that energy costs will reach their historic high in February 2022, it is possible that higher prices will persist through the decade.
Enerdata is a data-driven project that gathers data on wholesale energy markets, alternative fuels, and electricity prices. The project will look at how energy prices impact European households, the competitiveness of European industry, and the purchasing power of citizens. In addition to its data-driven approach, the study will also focus on how much energy we consume and how we pay for it. The study will also examine the role of competition in the formation of energy prices and the effects of Member States’ taxes on energy costs.
Food prices
The price of food in the EU has gone up by 7.1% in the last year, almost twice as much as inflation. According to the EU’s statistics office, Eurostat, Eastern Europe has been hit the worst. In Bulgaria, for instance, prices rose 25.4%. In Latvia, it was 21.7%. In Lithuania, 18.1%. Portugal, on the other hand, reported a decrease of 3.2%, well below the EU average. Italy and Cyprus also saw food price increases of 5.8% and 5.9% respectively.
Meanwhile, food inflation in the Baltic States has been far higher than in most of the other countries in the eurozone. This is because of the countries’ open economies, which are more exposed to fluctuations in the international commodity markets. There are reports indicating that prices in Estonia may rise as high as 19% year-on-year. This suggests that differences in HICP food inflation across the eurozone are likely to widen even further.
Recent increases in the cost of food are likely to renew debates over welfare payments and welfare payouts. The UK’s rate of inflation in April rose to 9%, the highest since October 2009. Food prices in Italy, Spain, and the UK have been increasing faster than average in the past year. Pasta, for example, rose by almost 50 percent in the year between April 2021 and 2022. The increase in the cost of pasta was the steepest in the last year.
Non-energy industrial goods prices
The European Central Bank has concluded that it must intervene to curb the pace of soaring prices by containing expectations of inflation. However, the measures of inflation – including HICP (the harmonized index of consumer prices) – are far from effective. This article examines the reasons for the recent rise in prices and provides an updated outlook. The outlook is based on the outcome of the war in Ukraine.
Eurozone inflation has reached new record highs. Rising food and energy prices have been the major contributors to the soaring costs. Meanwhile, annual inflation in the eurozone has hit its highest level since 1997. Energy prices were up 39.5 per cent, the highest rate in the past nine months. Consumer prices were up 4.2% in April while industrial goods and services increased 3.5%. Overall, the Eurozone’s inflation rate is now higher than the U.S.’s in May.
The rise in European prices is a global problem. The main culprit behind the inflation rate in the region is the rising cost of energy. The cost of energy rose 44.7% in March and 32% in February. These two factors had already been driving up energy prices in the region, but after Russia invaded Ukraine, energy prices skyrocketed. Fears of trade sanctions and import restrictions triggered the rise in energy prices. Food prices also rose, with 5% in March and 4.2% in February.
High-contact services
Prices of high-contact services have accelerated in March, with the overall rate of increase 4.3% higher than in February. Despite the easing of containment measures, some factors remain in place to cause this strong recovery. The energy price rise is pushing up the cost of transportation and other high-contact services. A recent survey by the ECB of large European companies showed that wages were expected to grow faster in 2022 than in 2013 – this could be attributed to the high level of inflation at present.
The euro area’s headline inflation is largely caused by energy prices, but food and commodity prices have contributed to the overall rate of inflation. The impact of pandemics is further subdivided into supply and re-opening disruptions. The latter affects high-contact services the most. During these times, supply disruptions are likely to affect prices, as a result. HICP inflation is a useful thermometer for economic activity. Low inflation indicates a cool economy, while high inflation means that demand has exceeded capacity and prices have risen fast. For Europe, a steady two percent rate of inflation is ideal.
