Harmonised competitiveness indicators
The harmonised competitiveness indicators (HCIs) provide an overview of the price and cost competitiveness of each euro area country relative to its own principal competitors in international markets (including partners in the euro area).
The indicators are constructed using the same methodology and data sources as the nominal and real effective exchange rates (EERs) of the euro for the euro area as a whole.
The nominal HCIs of a euro area country aim to track changes in the value of the euro relative to the currencies of its principal trading partners.
The real HCIs aim to assess a euro area country’s price or cost competitiveness relative to its principal competitors in international markets. They are calculated as the nominal HCIs deflated by consumer price indices (CPIs), producer price indices (PPIs), GDP deflators and unit labour costs for the total economy (ULCT).
The HCIs reflect a common understanding between Eurosystem national central banks (NCBs). They complement other competitiveness indicators published by some NCBs, which may follow different methodologies and, in some cases, use different price and cost measures in order to account for the specific circumstances in their countries.
The HCIs are conceptually equivalent to the real EER of a currency. They are calculated on the basis of weighted averages of bilateral exchange rates vis-à-vis the currencies of the trading partners of each euro area country and are deflated by appropriate cost or price indices. The methodology is based on the following elements:
The weights are based on bilateral data on trade in manufactured goods, as defined in Sections 5 to 8 of the Standard International Trade Classification (i.e. excluding agricultural, raw material and energy products) for the periods 1995-97, 1998-2000, 2001-03, 2004-06, 2007-09, 2010-12 and 2013-15.
The weights incorporate information on both exports and imports. Import weights are the simple shares of each partner country in the total imports. Exports are double-weighted in order to account for “third-market effects”, i.e. to capture the competition faced in foreign markets from both domestic producers and exporters from third countries. The final overall weights of each partner country are obtained as the weighted average of the export and import weights.
Seven sets of weights are currently available, based on trade data for the periods 1995-97, 1998-2000, 2001-03, 2004-06, 2007-09, 2010-12 and 2013-15. The final HCIs result from chain linking, at the end of each period, the indices based on the weights for two consecutive periods. The weights are updated every three years in order to reflect recent developments in the pattern of international trade.
The HCIs based on the consumer price indices, producer price indices, GDP deflators, and on unit labour costs are calculated against four groups of trading partners:
- vis-à-vis the other 19 euro area countries;
- vis-à-vis the other 19 euro area countries and the group of 12 trading partners, Australia, Canada, Denmark, Hong Kong, Japan, Norway, Singapore, South Korea, Sweden, the United Kingdom, Switzerland and the United States;
- vis-à-vis the other 19 euro area countries and the group of 18 trading partners, which comprises the group of 12 plus Bulgaria, China, Czech Republic, Hungary, Poland and Romania;
- vis-à-vis the other 19 euro area countries and the group of 19 trading partners, which comprises the group of 18 plus Croatia.
The HCIs based on consumer prices are additionally calculated:
- vis-à-vis the other 19 euro area countries and the group of 38 trading partners, which comprises the group of 19 plus Algeria, Argentina, Brazil, Chile, Iceland, India, Indonesia, Israel, Malaysia, Mexico, Morocco, New Zealand, the Philippines, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela.
DeflatorsThe HCIs are deflated with the following variables:
- consumer price indices: for European countries, the all-items Harmonised Index of Consumer Prices as published by Eurostat is used; for the other trading partners, all-item national consumer price indices are used;
- producer price indices: for European countries, the Producer Price Index – domestic sales in the manufacturing sector, classified according to the NACE Rev.2 classification as published by Eurostat – is used; for the other trading partners, these data are derived from data published by the BIS;
- GDP deflators: for European countries, GDP deflators are derived from their quarterly national accounts as published by Eurostat; for the other trading partners, they are derived from their national accounts as published by the BIS, OECD and IMF;
- unit labour costs in the total economy: the ratio of total compensation per employee to labour productivity, with labour productivity measured as GDP at constant prices divided by the total number of persons employed; for European countries, the available data are derived from their quarterly national accounts as published by Eurostat; for the other trading partners, these data are derived from their national accounts as published by the BIS, OECD and IMF;
Indicators based on consumer price indices are the most widely used indicators of price competitiveness since they offer the best data quality and comparability across countries, are available on a timely basis (also for emerging market economies) and are subject to only minor revision. Like all Harmonised Competitiveness Indicators, however, they have a number of drawbacks from a conceptual point of view (e.g. the indicators based on consumer price indices exclude some tradable goods, such as capital goods; they are affected by indirect taxes and subsidies; and they are only indirectly related to production costs). 
Indicators based on unit labour costs usually show some volatility and are subject to more significant revisions, owing to the specificities of the compilation of statistics on wages and employment.
The indicators based on GDP deflators can be affected by the volatility of quarterly GDP series, particularly for smaller economies. Whole year results may be more reliable indicators of underlying trends. The comparability of these indicators can also be affected by distortions resulting from taxes and subsidies.
Overall, comparability across countries can be affected by the inclusion of prices or costs of goods and services that are not internationally tradable, and thus might only indirectly affect the price competitiveness of the export sector.
 Unlike the euro real EER, the HCI for a euro area country is also calculated vis-à-vis the other euro area countries. Within the framework of Economic and Monetary Union, the bilateral nominal exchange rates among the former currencies of the originally participating Member States have been irrevocably fixed since 1999.
 See Section II.3 of ECB Occasional Paper No 2 for a more detailed description of the capturing of third-market effects.
 Data for Argentina are currently not available due to the state of emergency in the national statistical system declared by the government of Argentina on 7 January 2016. As a consequence, Argentina is not included in the calculation of the EER-38 CPI deflated series from February 2016. The policy regarding the inclusion of Argentina will be reconsidered in the future depending on further developments.
 For a detailed discussion of the merits and limitations of various indicators of cost and price competitiveness, see the article entitled “Developments in the euro area's international cost and price competitiveness”, ECB Monthly Bulletin, August 2003.