New Facts on Consumer Price Rigidity in the Euro Area

113 Pages Posted: 7 Jul 2022

See all articles by Erwan Gautier

Erwan Gautier

Banque de France - Centre de Recherche

Cristina Conflitti

Bank of Italy

Riemer P. Faber

National Bank of Belgium

Brian Fabo

National Bank of Slovakia

Ludmila Fadejeva

Latvijas Banka

Valentin Jouvanceau

Bank of Lithuania

Jan-Oliver Menz

Deutsche Bundesbank

Teresa Messner

Oesterreichische Nationalbank (OeNB)

Pavlos Petroulas

Bank of Greece; European Central Bank (ECB)

Pau Roldan-Blanco

Banco de España

Fabio Rumler

Oesterreichische Nationalbank

Sergio Santoro

European Central Bank (ECB)

Elisabeth Wieland

Deutsche Bundesbank

Helene Zimmer

National Bank of Belgium

Multiple version iconThere are 3 versions of this paper

Date Written: June 2022

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 (vs 19.3% in the United States); when we exclude price changes due to sales, this proportion drops to 8.5% in the euro area vs. 10% in the United States; (ii) differences in price rigidity are rather limited across countries but much larger across sectors; (iii) the median price increase (resp. decrease) is 9.6% (13%) and 6.7% (8.7%) when excluding sales; (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

JEL Classification: D40, E31

Suggested Citation

Gautier, Erwan and Conflitti, Cristina and Faber, Riemer P. and Fabo, Brian and Fadejeva, Ludmila and Jouvanceau, Valentin and Menz, Jan-Oliver and Messner, Teresa and Petroulas, Pavlos and Roldan-Blanco, Pau and Rumler, Fabio and Santoro, Sergio and Wieland, Elisabeth and Zimmer, Helene, New Facts on Consumer Price Rigidity in the Euro Area (June 2022). Banque de France Working Paper No. 878, Available at SSRN: https://ssrn.com/abstract=4156037 or http://dx.doi.org/10.2139/ssrn.4156037

Erwan Gautier (Contact Author)

Banque de France - Centre de Recherche ( email )

31 rue Croix des Petits Champs
75049 Paris Cedex 01
France

Cristina Conflitti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Riemer P. Faber

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Brian Fabo

National Bank of Slovakia ( email )

Imricha Karvasa 1
813 25 Bratislava
Slovakia

Ludmila Fadejeva

Latvijas Banka ( email )

Riga
Latvia

Valentin Jouvanceau

Bank of Lithuania ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

Jan-Oliver Menz

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Teresa Messner

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Pavlos Petroulas

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Pau Roldan-Blanco

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Fabio Rumler

Oesterreichische Nationalbank ( email )

Otto-Wagner Platz 3
POB 61
Vienna 1011
Austria

Sergio Santoro

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Elisabeth Wieland

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Helene Zimmer

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

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