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Inflation measurement and its assessment in the ECB’s monetary policy strategy review

Author

Listed:
  • Nickel, Christiane
  • Fröhling, Annette
  • Álvarez, Luis J.
  • Willeke, Caroline
  • Zevi, Giordano
  • Osbat, Chiara
  • Ganoulis, Ioannis
  • Koester, Gerrit
  • Lis, Eliza
  • Peronaci, Romana
  • Hahn, Elke
  • Beka, Jan
  • Henkel, Lukas
  • Conflitti, Cristina
  • Herzberg, Julika
  • Costain, James
  • Hoeberichts, Marco
  • Eiglsperger, Martin
  • Jonckheere, Jana
  • Kalantzis, Yannick
  • Kapatais, Demetris
  • Gautier, Erwan
  • Knetsch, Thomas
  • Goldhammer, Bernhard
  • Kondelis, Evripides
  • Rumler, Fabio
  • Kouvavas, Omiros
  • Schwind, Patrick
  • Krasnopjorovs, Olegs
  • Sosič, Nika
  • Strasser, Georg
  • Lünnemann, Patrick
  • Trezzi, Riccardo
  • Martins, Fernando
  • van Overbeek, Fons
  • Messner, Teresa
  • Vilmi, Lauri
  • Mociunaite, Laura
  • Vlad, Aurelian
  • Wauters, Joris
  • O'Brien, Derry
  • Weinand, Sebastian
  • Westermann, Thomas
  • Popova, Dilyana
  • Wintr, Ladislav
  • Porqueddu, Mario
  • Zekaite, Zivile
  • Roma, Moreno

Abstract

This paper – which takes into consideration overall experience with the Harmonised Index of Consumer Prices (HICP) as well as the improvements made to this measure of inflation since 2003 – finds that the HICP continues to fulfil the prerequisites for the index underlying the ECB’s definition of price stability. Nonetheless, there is scope for enhancing the HICP, especially by including owner-occupied housing (OOH) using the net acquisitions approach. Filling this long-standing gap is of utmost importance to increase the coverage and cross-country comparability of the HICP. In addition to integrating OOH into the HICP, further improvements would be welcome in harmonisation, especially regarding the treatment of product replacement and quality adjustment. Such measures may also help reduce the measurement bias that still exists in the HICP. Overall, a knowledge gap concerning the exact size of the measurement bias of the HICP remains, which calls for further research. More generally, the paper also finds that auxiliary inflation measures can play an important role in the ECB’s economic and monetary analyses. This applies not only to analytical series including OOH, but also to measures of underlying inflation or a cost of living index. JEL Classification: C43, C52, C82, E31, E52

Suggested Citation

  • Nickel, Christiane & Fröhling, Annette & Álvarez, Luis J. & Willeke, Caroline & Zevi, Giordano & Osbat, Chiara & Ganoulis, Ioannis & Koester, Gerrit & Lis, Eliza & Peronaci, Romana & Hahn, Elke & Beka, 2021. "Inflation measurement and its assessment in the ECB’s monetary policy strategy review," Occasional Paper Series 265, European Central Bank.
    • Handle: RePEc:ecb:ecbops:2021265
    Note: 166869
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op265~a3fb0b611d.en.pdf
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    References listed on IDEAS

    as
    1. Rodolfo Arioli & Colm Bates & Heinz Dieden & Ioana Duca & Roberta Friz & Christian Gayer & Geoff Kenny & Aidan Meyler & Iskra Pavlova, 2016. "EU Consumers’ Quantitative Inflation Perceptions and Expectations: An Evaluation," European Economy - Discussion Papers 038, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Luc Aucremanne & Marianne Collin & Thomas Stragier, 2007. "Assessing the Gap between Observed and Perceived Inflation in the Euro Area : Is the Credibility of the HICP at Stake ?," Working Paper Research 112, National Bank of Belgium.
    3. Henning Ahnert & Geoff Kenny, 2004. "Quality adjustment of European price statistics and the role for hedonics," Occasional Paper Series 15, European Central Bank.
    4. Kenny, Geoff & Ahnert, Henning, 2004. "Quality adjustment of European price statistics and the role for hedonics," Occasional Paper Series 15, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Bobeica Elena & Holton Sarah & Koester Gerrit, 2023. "Bringing Inflation Back Under Control," Intereconomics: Review of European Economic Policy, Sciendo, vol. 58(3), pages 136-141, June.
    2. Joris Wauters & Zivile Zekaite & Garo Garabedian, 2024. "Owner-occupied housing costs, policy communication, and inflation expectations," Working Paper Research 449, National Bank of Belgium.
    3. Carlomagno, Guillermo & Fornero, Jorge & Sansone, Andrés, 2023. "A proposal for constructing and evaluating core inflation measures," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(3).
    4. Blasius, Amelie, 2023. "Digitalisierung in der Preisstatistik - Nutzung von Reisebuchungsdaten," WISTA – Wirtschaft und Statistik, Statistisches Bundesamt (Destatis), Wiesbaden, vol. 75(4), pages 34-46.

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    More about this item

    Keywords

    HICP inflation; inflation measurement; measurement bias; Monetary policy review; owner-occupied housing; underlying inflation;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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