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Comparing U.S. and European inflation: the CPI and the HICP
Walter Lane and Mary Lynn Schmidt
This article introduces an experimental1 consumer price index for the United States that follows, to the extent possible, the methods of the Harmonized Index of Consumer Prices (HICP), the European Union’s (EU’s) official price index. The U.S. HICP differs from the U.S. Consumer Price Index (CPI) in two major respects. First, the HICP includes the rural population in its scope. Second, and probably more importantly, the HICP excludes owner-occupied housing, in part because the methods for measuring price changes for owner-occupied housing are controversial and difficult. To construct the experimental U.S. HICP, the CPI first was expanded to cover the entire (noninstitutional) U.S. population and then was narrowed to remove the owner-occupied housing costs that the HICP excludes from its scope.
Price indexes, such as the CPI, are complex constructs that can be sensitive to decisions about their scope, the formulas by which they are calculated, and other factors that are under the control of the statistical agencies that disseminate them. Until recently, there was little standard international practice pertaining to CPI’s, and in making decisions on how to structure their CPI’s, the agencies often gave a low priority to international comparability. Virtually every country has a statistical agency that produces these indexes. Countries use CPI’s for a variety of purposes, one of the chief ones of which is largely internal: as a mechanism for adjusting income payments such as Social Security. For this purpose, international differences may be of little importance.
This excerpt is from an article published in the May 2006 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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Footnotes
1
The Bureau of Labor Statistics uses the term
"experimental," in contrast to "official," to denote series
that it produces outside of its regular production systems and, consequently,
with less than full production quality. For security reasons, BLS researchers
cannot produce experimental statistics until after the publication of the
corresponding official statistics. To obtain experimental series referred to in
this article, contact either of the authors.
Related Monthly Labor Review articles
Inflation and the
business cycle during the postwar period.—Nov.
1984.
Defining the rate of underlying inflation (PDF).—Sept.
1981.
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