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New facts on consumption price rigidity in the Euro Area

Author

Listed:
  • Erwan Gautier
  • Cristina Conflitti
  • Riemer P. Faber
  • Brian Fabo

    (National Bank of Slovakia)

  • Ludmila Fadejeva
  • Valentin Jouvanceau
  • Jan-Oliver Menz
  • Teresa Messner
  • Pavlos Petroulas
  • Pau Roldan-Blanco
  • Fabio Rumler
  • Sergio Santoro
  • Elisabeth Wieland
  • Hélène Zimmer

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.

Suggested Citation

  • 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 & Se, 2022. "New facts on consumption price rigidity in the Euro Area," Working and Discussion Papers WP 1/2022, Research Department, National Bank of Slovakia.
  • Handle: RePEc:svk:wpaper:1085
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    Citations

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    Cited by:

    1. Hugh Montag & Daniel Villar, 2022. "Price-Setting During the Covid Era," Economic Working Papers 547, Bureau of Labor Statistics.
    2. Thomas Y. Mathä & Moritz Osterhuber & Ladislav Wintr, 2022. "Consumer price behaviour in Luxembourg: New evidence from micro price data for 2005-2017," BCL Bulletin Analyses, Central Bank of Luxembourg, vol. 2022, pages 75-84.
    3. Christian Beer & Robert Ferstl & Bernhard Graf & Fabio Rumler, 2023. "Grocery price setting in times of high inflation: what webscraped data tell us," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/22-Q1/, pages 43-54.
    4. Dr. Barbara Rudolf & Pascal Seiler, 2022. "Price setting before and during the pandemic: evidence from Swiss consumer prices," Working Papers 2022-12, Swiss National Bank.
    5. Menz, Jan-Oliver & Wieland, Elisabeth & Mehrhoff, Jens, 2022. "Estimating the impact of quality adjustment on consumer price inflation," Discussion Papers 49/2022, Deutsche Bundesbank.
    6. Teresa Messner & Fabio Rumler, 2023. "Inflation expectations of Austrian households and firms amid high inflation," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/22-Q1/, pages 55-66.
    7. Aurélien Espic & Lisa Kerdelhué & Julien Matheron, 2024. "Capital Requirements in Light of Monetary Tightening," Working papers 947, Banque de France.
    8. Raza, Hamid & Laurentjoye, Thibault & Byrialsen, Mikael Randrup & Valdecantos, Sebastian, 2023. "Inflation and the role of macroeconomic policies: A model for the case of Denmark," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 32-43.
    9. Kornilia Vikelidou & Athanasios Tagkalakis, 2022. "Banking union: state of play and proposals for the way forward," Working Papers 303, Bank of Greece.

    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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