Low inflation in the euro area: import prices and domestic slack

Nicolas Chatelais, Annabelle De Gaye and Yannick Kalantzis

Rue de la Banque, 2015, issue 06

Abstract: Consumer price inflation in the euro area has declined continuously since 2012. At the end of 2014, it was close to zero, well below the level of 2% consistent with the medium-term objective of the Eurosystem. This evolution took place against the backdrop of strongly decelerating prices of imported goods and a slowdown of economic activity likely to weigh on domestic prices. This letter studies the impact on inflation of both factors, import prices and domestic slack, and quantifies their respective contributions. As our analysis shows, when taking these two factors into account we are able to adequately reproduce the observed dynamics of inflation. According to our results, domestic slack and decelerating import prices contributed roughly equally, at the end of 2014, to the low level of inflation compared to the medium-term target.

Date: 2015
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:bfr:rueban:2015:06

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