<p>The Harmonized Index of Consumer Prices (HICP) is a measure of consumer inflation, designed to provide a comparable measure of inflation across European Union (EU) member states. It is used by the European Central Bank (ECB) to assess price stability and guide monetary policy.</p>

<h2>How It Works</h2>
<p>The HICP is calculated using a harmonized methodology across all EU countries. It covers a wide range of goods and services, including food, energy, housing, transport, and communication. Here's a simplified breakdown:</p>
<ul>
  <li>Each country collects price data for these items.</li>
  <li>Prices are collected in a standardized way, using a common methodology and classification system.</li>
  <li>Price changes are calculated for each item, and then aggregated to produce the overall HICP.</li>
</ul>
<p>The HICP is typically published on a monthly and annual basis, with the annual rate of change being the most closely watched figure.</p>

<h2>Why It Matters</h2>
<p>The HICP matters for several reasons. Firstly, it helps the ECB to monitor and maintain price stability in the Eurozone. The ECB's primary objective is to maintain inflation rates below, but close to, 2% over the medium term. The HICP is the key indicator used to assess progress towards this goal.</p>
<p>Secondly, the HICP provides a consistent measure of inflation across the EU. This is important for comparing economic performance between countries, and for making informed decisions about trade and investment.</p>
<p>For example, if the HICP in Germany is consistently higher than in Spain, this might indicate that goods and services are generally more expensive in Germany. This could influence business decisions about where to locate operations, or consumer decisions about where to spend holidays.</p>