Eurozone¹ annual inflation was 4.0% in July 2008², unchanged compared with June. A year earlier the rate was 1.8%. Monthly inflation was -0.2% in July 2008.

EU³ annual inflation was 4.4% in July 2008, up from 4.3% in June. A year earlier the rate was 2.0%. Monthly inflation was -0.1% in July 2008.

The target inflation rate of the European Central Bank is "below but close to" 2%.

These figures come from Eurostat, the Statistical Office of the European Union.

Inflation in the EU Member States

In July 2008, the lowest annual rates were observed in the Netherlands (3.0%), Portugal (3.1%) and Germany (3.5%), and the highest in Latvia (16.5%), Bulgaria (14.4%) and Lithuania (12.4%). Compared with June 2008, annual inflation rose in fifteen Member States, remained stable in five and fell in seven.

The lowest 12-month averages⁴ up to July 2008 were registered in the Netherlands (1.8%), the United Kingdom (2.6%) and Portugal (2.7%), and the highest in Latvia (15.1%), Bulgaria (12.3%) and Estonia (10.1%).

Eurozone

The main components with the highest annual rates in July 2008 were transport (7.2%), food and housing (both 6.7%), while the lowest annual rates were observed for communications (-2.2%), clothing (-0.5%) and recreation & culture (0.2%). Concerning the detailed sub-indices, fuels for transport (+0.71 percentage points), heating oil (+0.39) and milk, cheese & eggs (+0.20) had the largest upward impacts on the headline rate, while garments
(-0.24), telecommunications (-0.20) and cars (-0.19) had the biggest downward impacts.

The main components with the highest monthly rates were recreation & culture and hotels & restaurants (both 1.3%) and housing (0.8%), and the lowest were clothing (-9.3%), household equipment (-0.4%) and communications (-0.3%). In particular, package holidays (+0.15 percentage points), accommodation services (+0.11) and fuels for transport (+0.05) had the largest upward impacts, while garments (-0.50) and footwear (-0.13) had the biggest downward impacts.

Annual inflation (%) in July 2008 in ascending order

Eurozone

EU Member States outside the Eurozone

Inflation rates in %, measured by HICPs

Source: Eurostat p = provisional

Eurozone inflation rates in % for main components, measured by HICPs

Source: Eurostat * FoodAlcTob = Food, alcohol and tobacco p = provisional r = revised

Measures of inflation

The annual rate measures the price change between the current month and the same month of the previous year. This measure is responsive to recent changes in price levels but can be influenced by one-off effects in either month.

The 12-month average rate⁴ overcomes this volatility by comparing average Harmonized Indices of Consumer Prices (HICPs) in the latest 12 months to the average of the previous 12 months. This measure is less sensitive to transient changes in prices.

The monthly rate compares price levels between the two latest months. Although up-to-date, it can be affected by seasonal and other effects.

The impact of a particular component measures the change in the headline inflation due to the inclusion of that component in the HICP. The impact takes account of both the weight and whether the inflation for that component is higher or lower than the all-items inflation rate. For example, the impact of ‘tobacco’ is equal to the difference between the all-items inflation rate and the rate for ‘all-items excluding tobacco’. Impacts are not strictly additive.

HICPs designed for international comparison

Harmonized Indices of Consumer Prices (HICPs) are harmonized inflation figures required under Article 121 of the Treaty of Amsterdam (109j of the Treaty on European Union). They are designed for international comparison of consumer price inflation. The focus is on quality and comparability among the indices of different countries as well as on their relative movements.

Price changes as measured by the HICPs, the Monetary Union Index of Consumer Prices (MUICP), the European Index of Consumer Prices (EICP) and the European Economic Area Index of Consumer Prices (EEAICP) are used as measures of inflation in the Member States, in the Eurozone, in the European Union, and in the European Economic Area.

The MUICP is used by, among others, the European Central Bank (ECB) as a main indicator for monetary policy management for the Eurozone.

The Member States’ HICPs are supplied by the National Statistical Institutes; the MUICP, EICP and EEAICP are compiled by Eurostat. The HICP is computed as an annual chain index allowing weights to be changed each year. HICP aggregates are calculated as weighted averages of the HICPs using the weights of the countries and sub-indices concerned. The weight of a country is its share of the household final monetary consumption expenditure in the Eurozone total. For the MUICP this is expressed in euro, for the EICP and the EEAICP it is expressed in purchasing power standards. The MUICP is treated as a single entity within the EICP and EEAICP starting from 1999.

1. Eurozone inflation is measured by the MUICP (’Monetary Union Index of Consumer Prices’ as defined in Council Regulation (EC) No 2494/95 of 23 October 1995) which is the official Eurozone aggregate. The Eurozone initially included Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland. Greece was included from 1 January 2001, Slovenia from 1 January 2007, and Cyprus and Malta from 1 January 2008. New Member States are integrated into the MUICP using a chain index formula.
2. The MUICP flash estimate for July 2008, published on 31 July 2008, was 4.1%.
3. EU inflation is measured by the EICP (’European Index of Consumer Prices’) which is the official EU aggregate. The EU included 15 Member States until 30 April 2004, 25 Member States from 1 May 2004 until 31 December 2006 and 27 Member States from 1 January 2007. New Member States are integrated into the EICP using a chain index formula.
4. Measure used to determine price stability in Convergence reports of 1998, 2000, 2002, 2004, 2006 and 2007 by the Commission to the Council.
5. Price collection periods for the German HICP have been adjusted from January 2008 onwards to be in line with the temporal coverage regulation.
6. Switzerland started producing HICPs from January 2008. HICP estimates for 2005-2007 are not fully compliant with HICP methodology.