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New Facts on Consumer Price Rigidity in the Euro Area

Erwan Gautier (), Cristina Conflitti, Riemer P. Faber, Brian Fabo, Ludmila Fadejeva, Valentin Jouvanceau, Jan-Oliver Menz (), Teresa Messner, Pavlos Petroulas (), Pau Roldan-Blanco (), Fabio Rumler (), Sergio Santoro, Elisabeth Wieland () and Helene Zimmer
Additional contact information
Cristina Conflitti: Banca d’Italia
Riemer P. Faber: National Bank of Belgium
Brian Fabo: National Bank of Slovakia
Valentin Jouvanceau: Lietuvos Bankas
Teresa Messner: Oesterreichische Nationalbank
Sergio Santoro: European Central Bank
Helene Zimmer: National Bank of Belgium

No 2022/03, Working Papers from Latvijas Banka

Abstract: Using CPI micro data for 11 euro area countries covering about 60% of the euro area consumption basket over the period 2010-2019, we document new findings on consumer price rigidity in the euro area: (i) each month on average 12.3% of prices change, which compares with 19.3% in the United States; when we exclude price changes due to sales, however, the proportion of prices adjusted each month is 8.5% in the euro area versus 10% in the United States; (ii) differences in price rigidity are rather limited across euro area countries but much larger across sectors; (iii) the median price increase (resp. decrease) is 9.6% (13%) when including sales and 6.7% (8.7%) when excluding sales; cross-country heterogeneity is more pronounced for the size than for the frequency of price changes; (iv) the distribution of price changes is highly dispersed: 14% of price changes in absolute values are lower than 2% whereas 10% are above 20%; (v) the overall frequency of price changes does not change much with inflation and does not react much to aggregate shocks; (vi) changes in inflation are mostly driven by movements in the overall size; when decomposing the overall size, changes in the share of price increases among all changes matter more than movements in the size of price increases or the size of price decreases. These findings are consistent with the predictions of a menu cost model in a low inflation environment where idiosyncratic shocks are a more relevant driver of price adjustment than aggregate shocks.

Keywords: price rigidity; inflation; consumer prices; micro data (search for similar items in EconPapers)
JEL-codes: D40 E31 (search for similar items in EconPapers)
Date: 2022-06-30
New Economics Papers: this item is included in nep-mon
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Working Paper: New facts on consumer price rigidity in the Euro Area (2022) Downloads
Working Paper: New facts on consumer price rigidity in the euro area (2022) Downloads
Working Paper: New facts on consumer price rigidity in the euro area (2022) Downloads
Working Paper: New Facts on Consumer Price Rigidity in the Euro Area (2022) Downloads
Working Paper: New facts on consumer price rigidity in the euro area (2022) Downloads
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