Harmonized Index of Consumer Prices (HICP) is a standardized measure of inflation used to compare consumer price changes across different countries, primarily within the European Union (EU). It reflects how the average prices of goods and services purchased by households change over time, providing a consistent framework for assessing inflation trends internationally.

The key feature of the HICP is its harmonization. This means all participating countries follow a common set of statistical definitions and methods set by the European Unionís statistical office, Eurostat. This ensures that inflation data from different nations can be directly compared without being distorted by differing calculation methods or consumption patterns.

The HICP includes a wide range of goods and services such as food, housing, transportation, healthcare, and education. However, unlike some national inflation measures, it may exclude certain costs like owner-occupied housing to maintain consistency across countries where housing ownership rates and policies differ significantly.

Central banks, including the European Central Bank (ECB), closely monitor the HICP to guide their monetary policy decisions. The ECBís price stability target, for instance, is defined as keeping inflation ìbelow, but close to, 2% over the medium termî based on the HICP.

In essence, the Harmonized Index of Consumer Prices serves as a crucial economic indicator that tracks consumer inflation in a uniform way across multiple economies. It helps policymakers, economists, and investors understand cross-country inflation trends, evaluate purchasing power changes, and make informed decisions about monetary and fiscal policies.