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

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

No 265, Occasional Paper Series from European Central Bank

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

Keywords: HICP inflation; inflation measurement; measurement bias; Monetary policy review; owner-occupied housing; underlying inflation (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-cba, nep-isf, nep-mac and nep-mon
Note: 166869
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Handle: RePEc:ecb:ecbops:2021265