Inflation Measurement and its Assessment in the Ecb's Monetary Policy Strategy Review

115 Pages Posted: 23 Sep 2021 Last revised: 18 Nov 2021

See all articles by Christiane Nickel

Christiane Nickel

European Central Bank (ECB)

Annette Fröhling

Deutsche Bundesbank

Caroline Willeke

European Central Bank (ECB)

Giordano Zevi

Bank of Italy

Chiara Osbat

European Central Bank (ECB)

Ioannis Ganoulis

European Central Bank (ECB) - Directorate General Economics

Gerrit Koester

European Central Bank (ECB)

Eliza Lis

European Central Bank (ECB)

Romana Peronaci

European Central Bank (ECB)

L. J. Álvarez

Banco de España

E. Hahn

European Central Bank (ECB)

J. Beka

National Bank of Slovakia

L. Henkel

European Central Bank (ECB)

C. Conflitti

Bank of Italy

J. Herzberg

Deutsche Bundesbank

J. Costain

Banco de España

M. Hoeberichts

De Nederlandsche Bank

M. Eiglsperger

European Central Bank (ECB)

J. Jonckheere

National Bank of Belgium

A. Fröhling

Deutsche Bundesbank

Y. Kalantzis

Banque de France

I. Ganoulis

European Central Bank (ECB)

D. Kapatais

Central Bank of Cyprus

E. Gautier

Banque de France

T. Knetsch

Deutsche Bundesbank

B. Goldhammer

European Central Bank (ECB)

G. Koester

European Central Bank (ECB)

E. Kondelis

Bank of Greece

F. Rumler

Oesterreichische Nationalbank (OeNB)

O. Kouvavas

European Central Bank (ECB)

P. Schwind

Deutsche Bundesbank

O. Krasnopjorovs

Bank of Latvia

N. Sosič

Bank of Slovenia

E. Lis

European Central Bank (ECB)

G. Strasser

European Central Bank (ECB)

P. Lünnemann

Banque Centrale du Luxembourg

R. Trezzi

European Central Bank (ECB)

F. Martins

Bank of Portugal

F. van Overbeek

De Nederlandsche Bank

T. Messner

Oesterreichische Nationalbank (OeNB)

L. Vilm

Bank of Finland

L. Mociunaite

Bank of Lithuania

A. Vlad

European Central Bank (ECB)

C. Nickel

European Central Bank (ECB)

J. Wauters

National Bank of Belgium

D. O'Brien

European Central Bank (ECB)

S. Weinand

Deutsche Bundesbank

C. Osbat

European Central Bank (ECB)

T. Westermann

European Central Bank (ECB)

R. Peronaci

European Central Bank (ECB)

C. Willeke

European Central Bank (ECB)

D. Popova

Deutsche Bundesbank

L. Wintr

Banque Centrale du Luxembourg

M. Porqueddu

European Central Bank (ECB)

Z. Zekaite

Central Bank of Ireland

M. Roma

European Central Bank (ECB)

G. Zevi

Bank of Italy

Date Written: September, 2021

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.

Keywords: HICP inflation, inflation measurement, measurement bias, Monetary policy review, owner-occupied housing, underlying inflation

JEL Classification: C43, C52, C82, E31, E52

Suggested Citation

Nickel, Christiane and Fröhling, Annette and Willeke, Caroline and Zevi, Giordano and Osbat, Chiara and Ganoulis, Ioannis and Koester, Gerrit B. and Lis, Eliza and Peronaci, Romana and Álvarez, L. J. and Hahn, E. and Beka, J. and Henkel, L. and Conflitti, C. and Herzberg, J. and Costain, J. and Hoeberichts, M. and Eiglsperger, M. and Jonckheere, J. and Fröhling, A. and Kalantzis, Y. and Ganoulis, I. and Kapatais, D. and Gautier, E. and Knetsch, T. and Goldhammer, B. and Koester, G. and Kondelis, E. and Rumler, F. and Kouvavas, O. and Schwind, P. and Krasnopjorovs, O. and Sosič, N. and Lis, E. and Strasser, G. and Lünnemann, P. and Trezzi, R. and Martins, F. and Overbeek, F. van and Messner, T. and Vilm, L. and Mociunaite, L. and Vlad, A. and Nickel, C. and Wauters, J. and O'Brien, D. and Weinand, S. and Osbat, C. and Westermann, T. and Peronaci, R. and Willeke, C. and Popova, D. and Wintr, L. and Porqueddu, M. and Zekaite, Z. and Roma, M. and Zevi, G., Inflation Measurement and its Assessment in the Ecb's Monetary Policy Strategy Review (September, 2021). ECB Occasional Paper No. 2021265, Available at SSRN: https://ssrn.com/abstract=3928286 or http://dx.doi.org/10.2139/ssrn.3928286

Christiane Nickel (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Annette Fröhling

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Caroline Willeke

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giordano Zevi

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Chiara Osbat

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6821 (Phone)
+49 69 1344 6000 (Fax)

Ioannis Ganoulis

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Gerrit B. Koester

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Eliza Lis

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Romana Peronaci

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

L. J. Álvarez

Banco de España

Alcala 50
Madrid 28014
Spain

E. Hahn

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

J. Beka

National Bank of Slovakia

Imricha Karvasa 1
813 25 Bratislava
Slovakia

L. Henkel

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

C. Conflitti

Bank of Italy

Via Nazionale 91
Rome, 00184
Italy

J. Herzberg

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

J. Costain

Banco de España

Alcala 50
Madrid 28014
Spain

M. Hoeberichts

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

M. Eiglsperger

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

J. Jonckheere

National Bank of Belgium

Brussels, B-1000
Belgium

A. Fröhling

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Y. Kalantzis

Banque de France

Paris
France

I. Ganoulis

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

D. Kapatais

Central Bank of Cyprus

80 Kennedy Ave
1076 Nicosia
Cyprus

E. Gautier

Banque de France

Paris
France

T. Knetsch

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

B. Goldhammer

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

G. Koester

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

E. Kondelis

Bank of Greece

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

F. Rumler

Oesterreichische Nationalbank (OeNB)

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

O. Kouvavas

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

P. Schwind

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

O. Krasnopjorovs

Bank of Latvia

Riga, 1050
United States

N. Sosič

Bank of Slovenia

Slovenska cesta 35
Slovenija, 1505
Slovenia

E. Lis

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

G. Strasser

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

P. Lünnemann

Banque Centrale du Luxembourg

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

R. Trezzi

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

F. Martins

Bank of Portugal

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

F. van Overbeek

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

T. Messner

Oesterreichische Nationalbank (OeNB)

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

L. Vilm

Bank of Finland

P.O. Box 160
Helsinki 00101
Finland

L. Mociunaite

Bank of Lithuania

Totoriu 4
Vilnius, LT-01121
Lithuania

A. Vlad

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

C. Nickel

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

J. Wauters

National Bank of Belgium

Brussels, B-1000
Belgium

D. O'Brien

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

S. Weinand

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

C. Osbat

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

T. Westermann

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

R. Peronaci

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

C. Willeke

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

D. Popova

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

L. Wintr

Banque Centrale du Luxembourg

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

M. Porqueddu

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Z. Zekaite

Central Bank of Ireland

P.O. Box 559
Dame Street
Dublin, 2
Ireland

M. Roma

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

G. Zevi

Bank of Italy

Via Nazionale 91
Rome, 00184
Italy

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