Citizens' recommendations for the ECB
- #1 Include housing prices in the inflation index
- #2 Decrease or stop quantitative easing
- #3 ECB should “green” its quantitative easing programme
- #4 Promote fair and sustainable lending by banks
- #5 Support green investment by public banks via quantitative easing
- #6 The European Central Bank could distribute money directly to people
- #7 Introduce a digital euro and allow every citizen to hold central bank money
- #8 Change European Union Treaties to allow for direct financing of government spending
- #9 Restrict money creation by banks
- #10 Review EU fiscal rules to increase public spending
- #11 Create a permanent eurozone federal budget to coordinate fiscal policy and stimulate the economy
- #12 Forgive Covid-19-related debt of people and businesses
- #13 Increasing diversity in the ECB’s executive Board
- #14 Consultations with citizens
- #15 Periodic democratic review of the ECB mandate
- #16 The European Central Bank should communicate in a more accessible way to ordinary citizens
#1 Include housing prices in the inflation index
The European Central Bank (ECB)’s primary goal is to maintain “price stability”, as defined at bringing the inflation rate close to 2% over the medium term.
To do that, the ECB monitors closely the inflation index, which is measured by Eurostat, the European Statistical Office, in coordination with national statistics authorities.
Statisticians measure inflation by monitoring the evolution of thousands of prices in supermarkets, online shops, but also the price of services such as a haircut. By collecting all these data, Eurostat then calculates the “Harmonised Index of Consumer Prices” (HICP), based on an average basket of products and services that most people need.
This process is not just a technical one. Depending on the composition of the basket of products or services, the inflation index will be more or less accurate depending on whether you spend more money on certains things or not, and more generally on your level of income.
For example, criticism against the HICP index points to the fact that today the inflation index only calculates housing & rents for 6.5% of the total index, while for most people housing represents around 25% or even half of families’s monthly budget. The cost of housing has also sharply risen in the last two decades, especially in big cities, which aggravates the perception that the inflation index is not reflecting the evolution of the real purchasing power of people.
It is important that the way inflation is measured mirrors how citizens across the eurozone experience their purchasing power.
- Including housing prices in the HICP would reflect more accurately what many people actually spend their money on.
- It would reinforce trust towards central banks.
- It would ensure that the ECB incorporates housing price developments when designing monetary policy. In other words: It would reduce the temptation of the ECB to run procyclical policies that boost mortgages.
- The measurement of housing prices usually happens on a quarterly basis (i.e. every 3 months), while inflation is measured on a monthly basis. This may make measuring inflation more difficult.
- Inflation is not supposed to measure the purchasing power of citizens, which also depends on the evolution of wage levels.