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

Author

Listed:
  • Chatelais, N.
  • De Gaye, A.
  • Kalantzis, Y.

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.

Suggested Citation

  • Chatelais, N. & De Gaye, A. & Kalantzis, Y., 2015. "Low inflation in the euro area: import prices and domestic slack," Rue de la Banque, Banque de France, issue 06, May..
    • Handle: RePEc:bfr:rueban:2015:06
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    File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/rue-de-la-banque_06_2015-05_en.pdf
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    Cited by:

    1. Thibault Lemaire, 2020. "Phillips in A Revolution: Unemployment and Prices in Early 21st Century Egypt," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03948605, HAL.
    2. L. De Charsonville & F. Ferrière & C. Jardet, 2017. "MAPI: Model for Analysis and Projection of Inflation in France," Working papers 637, Banque de France.
    3. Clémence Berson & Louis de Charsonville & Pavel Diev & Violaine Faubert & Laurent Ferrara & Sophie Guilloux-Nefussi & Yannick Kalantzis & Antoine Lalliard & Julien Matheron & Matteo Mogliani, 2018. "Does the Phillips curve still exist?," Rue de la Banque, Banque de France, issue 56, february.

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