Evaluating impact on direct and indirect consequences of the option
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Scope
Does the option have direct or indirect inflationary consequences?[1]
Definition
Inflation is the process of steady increase of prices resulting in the diminishing purchasing power of a given nominal amount of money. Inflation is commonly measured by an overall price index which follows the price changes of a selected basket of goods and services through time. In particular, Harmonised Indices of Consumer Prices (HICPs) are designed for international comparisons of consumer price inflation. HICP is used for example by the European Central Bank for monitoring of inflation in the Economic and Monetary Union and for the assessment of inflation convergence as required under Article 121 of the Treaty of Amsterdam.[1]
Analysing the impact of measures aimed at reducing distortions in price formation and at moderating inflation requires a parallel consideration of the effects of policies on the costs of production factors, particularly labour costs and the costs of imported goods and materials. Factors influencing the smooth functioning of markets, and ultimately income growth, also have implications on price levels and stability.
EU policies which affect price levels and stability are part of a more general macro-economic strategy of the Union, aimed at ensuring economic growth, employment and at keeping inflation under control (in the Euro area), and this entails commitments regarding budgetary policies, wage dynamics and structural policies. The set of measures that is most explicitly aimed at controlling inflationary pressures is monetary policy, which is carried out by the European System of Central Banks (Escb), comprising the European Central Bank and the Central Banks of the EMU Member States. The Escb is governed by the European Central Bank, and its basic tasks are:[1]
(a) to define and implement the monetary policy of the EU;
(b) to conduct foreign exchange operations;
(c) to hold and manage the official foreign reserves of the participating Member States;
(d) to promote the smooth operation of payment systems;
(e) to contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system.[1]
Without prejudice to the primary objective of price stability, monetary policy supports the general economic policies in the EU with a view to contributing to the achievement of the EU economic growth objectives. [1]
Result
EC related information:
- Activities of the European Union: Economic and Monetary affairs
- European Commission, Economic and Financial Affairs: Stability and Growth Pact[1]
Other information:
Indicators:
AMECO -ANNUAL MACRO ECONOMIC DATA BASE-
The following Eurostat Structural Indicator (General Economic Background) addresses directly the key question:
- (http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home Inflation Rate] (expressed as annual average rate of change in Harmonized Indices of Consumer Prices (HICPs))
- Real Unit Labour Cost Growth
The following Eurostat Sustainable Development Indicators (Economic Development) are relevant to address the key question:
See also
References
This text is for information only and is not designed to interpret or replace any reference documents. The text is partially adapted from IAstar, European Commission internal report