The consumer price index (CPI) is a measurement that tracks changes in the prices of various consumer goods. But how is it calculated and what’s the harmonized index of consumer prices?
7 min read
In October 2022, inflation in Austria hit 11%—and we can feel the effects of this pretty much every time we pull out our bank cards. Whether it’s food, gas and electric bills, or movie tickets, everything seems to be getting more and more expensive. And there’s another thing that’s going up these days: mentions of the consumer price index (CPI).But what exactly is the CPI? In this article, we explain what it measures, how it’s calculated, and everything else you need to know about the CPI for Austria.
What is the consumer price index?
The CPI is a national index for Austria that shows how prices are evolving. According to Statistics Austria, it’s a benchmark for general price trends, or rather, inflation in Austria. In other words, the CPI can be used to show changes over time in the consumer prices for all the goods and services purchased by private households in Austria. This includes rent, food, clothes, and devices—like smartphones, tablets, and computers—along with things like travel and haircuts.
Definition of the Consumer Price Index
In practical terms, the CPI is a benchmark for price changes. It measures the average development in the prices of all the goods and services purchased by private households for consumer purposes. The CPI is published monthly by Statistics Austria.What does the consumer price index tell us?The CPI is the main indicator for assessing inflation in Austria. Specifically, it looks at how much prices have changed compared to the same month in the previous year, or the previous year overall, and this determines the inflation rate. If the CPI increases over the long term, this is called inflation. On the other hand, if it falls over the long term, this indicates deflation.The change in the CPI compared to the same period in the previous year is also called the rate of inflation. So, as you can see, the CPI is a key economic indicator and a benchmark for how conditions are changing over the course of a year in Austria. This means the CPI isn’t only used as a basis for political decisions: It’s also a crucial factor for central banks setting their fiscal policy, too.
The Harmonized Index of Consumer Prices
The harmonized index of consumer prices (HICP) is used for comparisons at the EU level and serves as the basis for assessing financial stability within the eurozone. By extension, it allows changes in prices to be compared internationally. By the way, the HICP also takes all the expenditures made by foreign tourists in Austria into account. That’s known as the domestic concept. The European Central Bank (ECB) uses the HICP to assess price stability within the eurozone. Price stability is the central goal of the ECB. To ensure this, its fiscal policy aims to keep inflation at 2% in the medium term.
And what is the cost of living index?
You might have heard of the cost of living index in the past. Are you now wondering how it’s different from the CPI? The answer is pretty straightforward: The CPI used to be known as the cost of living index, but “consumer price index” is the more common name today. Nevertheless, both terms refer to the same benchmark for price changes.
The Consumer Price Index and index-linking clauses
The CPI is also used as a guide in salary negotiations or for things like rents and pensions. Plus, there are so-called “index-linking clauses” used in contracts. As the name suggests, these contract conditions are written so that the contract can be adjusted in line with changes to the CPI. The goal: to ensure that creditors get the precise equivalent of whatever figure was originally agreed on, even if the inflation rate changes significantly in the future. Here’s an index-linking calculator from Statistics Austria in case you want to see how this works in practice.
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To calculate the CPI for Austria, economists use a virtual “shopping basket.” It’s a set of almost 800 different goods and services that an average private household in Austria would hypothetically purchase. The goods and services range from food and clothing to rent—along with things like haircuts, taxis, and flights. Reported data from 20 Austrian cities and the Federal Statistical Office is evaluated to calculate the CPI. The cost of everything in the shopping basket is totaled up and compared against baseline costs from a given year—the current base year for the CPI in Austria is 2020. The result of this comparison is an index figure. Then, the following formula is used to compare different index figures and represent the change as a percentage: ((new index figure ÷ old index figure) x 100) – 100 = %One thing to note: You can only compare index figures that were measured against the same base year. If you want to compare index figures that used different base years, you can check the chained consumer price indices from 2017 to 2022.Let’s look at a concrete example. The index figure for October 2022 was 115.6, while the figure for October 2021 was 104.1. Both of these were calculated using 2020 as the base year, so we can compare them. If we apply the above formula, we get the inflation rate for October 2022: ((115.6 ÷ 104.1) x 100) – 100 = 11%
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As you now know, the CPI is calculated using a shopping basket that represents the goods and services typically purchased by private households in Austria. This is divided into twelve main categories, and each is given a weighting that affects how much changes in prices in that category impact the overall index. Why is this necessary? It’s simple: We don’t spend the same amount on each category. For example, Austrian consumers spend more on their rent than on going to the cinema, on average. And they spend more on food than on haircuts. As of 2022, the categories in Austria’s shopping basket that are the most heavily weighted are: housing, gas, and electricity and other fuels at 18.9%; transport at 13.7%; and restaurants and hotels at 12.7%. If there are major price changes in these important areas, this will have a bigger impact on inflation. Find out more about what’s in the shopping basket for Austria here.The behavior of Austrian consumers is constantly changing, which means the individual goods in the basket are adjusted and re-weighted each year, with products that people have stopped buying or services that have less market significance being replaced. Of course, new types of products are added to the basket, too.
What is the level of the Austrian consumer price index in 2022?
As we already mentioned, the Austrian consumer price index in October 2022 was 115.6. And as we saw in the formula, this means an increase of 11% compared to the previous year. While prices for housing, water, electricity, gas, and other fuels increased by an average of 19.2%, prices for food and soft drinks grew by an average of 14.4%. Still, according to Tobias Thomas, Director General of Statistics Austria, the high inflation rate is primarily due to energy and fuel prices. Without them, inflation would have been just 7.3%.Here, we’ve summarized the key price changes in October 2022 compared to October 2021:
Index position
Change in %
Gas
+ 126.6 %
Electricity (price/day)
+ 36.0 %
Private medical costs (paramedical services, psychotherapy, patient deductible)
- 13.7 %
Electricity (basic fee)
- 27.6 %
What is the level of the consumer price index in 2023?Of course, nobody can say for certain how prices will develop next year. But according to Statista, we can be hopeful that inflation will start to slow down—Austria is expecting an inflation rate of 5.5% or so in 2023.
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