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The role of demand and supply factors in HICP inflation during the COVID-19 pandemic – a disaggregated perspective

Author

Listed:
  • O’Brien, Derry
  • Dumoncel, Clémence
  • Gonçalves, Eduardo

Abstract

The response to the COVID-19 outbreak with lockdowns implies both a shutdown of some markets and a severe economic downturn. Price developments have been influenced in a complex manner by different demand and supply factors, which limits the applicability of past empirical regularities in the interpretation of recent aggregate inflation developments. This article looks at this complexity and applies a component-by-component approach to analysing HICP inflation that takes into account the circumstances prevailing in individual markets. The article analyses how sub-components of euro area inflation have behaved since the onset of the pandemic. It then elaborates on the relative importance of demand and supply factors driving the disaggregated price developments and the implications for headline inflation. The article concludes with the lessons that can be learnt from this bottom-up analysis, an approach that is particularly suited to current circumstances. JEL Classification: E21, E32

Suggested Citation

  • O’Brien, Derry & Dumoncel, Clémence & Gonçalves, Eduardo, 2021. "The role of demand and supply factors in HICP inflation during the COVID-19 pandemic – a disaggregated perspective," Economic Bulletin Articles, European Central Bank, vol. 1.
    • Handle: RePEc:ecb:ecbart:2021:0001:2
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    Citations

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    Cited by:

    1. Zeqiraj, Veton & Gurdgiev, Constantin & Sohag, Kazi & Hammoudeh, Shawkat, 2024. "Economic uncertainty, public debt and non-performing loans in the Eurozone: Three systemic crises," International Review of Financial Analysis, Elsevier, vol. 93(C).
    2. Garcia-Hiernaux, Alfredo & Gonzalez-Perez, Maria T. & Guerrero, David E., 2023. "Eurozone prices: A tale of convergence and divergence," Economic Modelling, Elsevier, vol. 126(C).
    3. Paolo Pasimeni, 2022. "Supply or Demand, that is the Question: Decomposing Euro Area Inflation," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 57(6), pages 384-393, November.
    4. ha, jongrim & Kose, Ayhan M. & Ohnsorge, Franziska & Yilmazkuday, Hakan, 2023. "What Explains Global Inflation," MPRA Paper 119645, University Library of Munich, Germany.
    5. Xu, Yingying & Lien, Donald, 2022. "Assessing the impact of COVID-19 on price Co-movements in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    6. Christiane Nickel & Gerrit Koester & Eliza Lis, 2022. "Inflation Developments in the Euro Area Since the Onset of the Pandemic," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 57(2), pages 69-75, March.
    7. Bobeica, Elena & Hartwig, Benny, 2021. "The COVID-19 shock and challenges for time series models," Working Paper Series 2558, European Central Bank.
    8. Xu, Yingying & Lien, Donald, 2024. "Together in bad times? The effect of COVID-19 on inflation spillovers in China," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 316-331.
    9. Nicholas Apergis, 2024. "Euro area inflation in the era of COVID‐19: A permanent or a transitory phenomenon?," Manchester School, University of Manchester, vol. 92(3), pages 231-245, June.

    More about this item

    Keywords

    euro area; Inflation;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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