The role of indirect taxes in euro area inflation and its outlook

Gerrit Koester, Ferdinand Dreher and Aurelian Vlad

Economic Bulletin Boxes, 2020, vol. 6

Abstract: This box reviews the impact of changes in indirect taxes on inflation developments in the euro area. In the past, increases in indirect taxes have tended to contribute positively to inflation in the euro area. However, the recent reductions in indirect taxes in response to the coronavirus (COVID-19) pandemic in several euro area countries, in particular in Germany, have not been seen before in the euro area on this scale. The impact they will have on inflation is surrounded by considerable uncertainty, but overall the pass-through is likely to be incomplete and to vary across sectors. In this respect, the September 2020 staff projections expect only a quite limited pass-through. The effects are nevertheless large enough to imply a slight V-shape profile for underlying inflation excluding the effects of changes in indirect taxes concealed in the annual numbers for HICPX, as well as a gradual increase between 2020 and 2022. JEL Classification: E31, H22, E37

Keywords: Indirect taxes; Inflation (search for similar items in EconPapers)
Date: 2020-09
Note: 3015628
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