A new national index of consumer prices and 10 years of the HICP

To mark the introduction, in January 2006, of a new national index of consumer prices (NICP) in Belgium and almost 10 years of application of the harmonised index of consumer prices (HICP) at the European level, the article highlights recent methodological developments regarding the two inflation measures. By reviewing the basket and the weighting scheme of the NICP, the 2006 reform eliminates the loss of representativeness, which was particularly pronounced in 2004 and 2005. As a result, there will be smaller discrepancies between NICP inflation and HICP inflation from 2007 onwards, while the method used for the introduction of the new NICP will temporarily reduce NICP-measured inflation in 2006. Despite the improvements introduced for the NICP, and in particular the adoption of bi-annual mini reforms, the HICP continues to be a more precise measure because its greater flexibility enhances its representativeness and because it is more accurate in terms of adjustments for quality changes. Future challenges include the treatment of owner-occupied housing, and the generalisation and harmonisation, at the European level, of the adjustments for quality changes.