The impact of the corona crisis on compiling the CPI

2. Why do we compile the CPI?

The main measure of consumer price development is the change in the CPI over a one-year period. We compare the price level in April 2020 with the price level in April 2019. Monthly price changes are more noticeable to consumers, but are also strongly influenced by seasonal patterns. After all, retailers sell clothing and shoes at a discount in their twice-yearly sales and there is clearly a strong seasonal element to the prices of hotels and package holidays. Comparing the price level now with the same period one year earlier cancels out the effect of these seasonal patterns.
This year-on-year change expressed in the CPI is an important measure of consumer price inflation. The CPI shows the extent to which household income has to increase in order to buy the same products and services, and is therefore widely used for indexation. If income rises in line with the CPI, the purchasing power of Dutch households remains stable. Indexation is used not only to adjust salaries or pensions, but also to help set tax rates, the price of renting a home and the financial component of all kinds of other contracts.
In addition to the national CPI, CBS also produces a European harmonised index of consumer prices (HICP). The main difference between these two indices is the scope: the CPI measures price development for the population of the Netherlands, while the HICP measures this for the Netherlands as a whole. The CPI therefore includes spending by Dutch citizens abroad, while the HICP includes spending by foreign visitors in the Netherlands. Because the HICP takes the country as its starting point, the HICPs of the various European countries can be merged into a single European HICP. The HICP also serves as an important reference point for the European Central Bank (ECB). In its efforts to maintain price stability, the ECB bases its monetary policy on the HICP to a considerable extent. Here, too, the primary focus is on change in prices relative to one year previous.