New Facts on Consumer Price Rigidity in the Euro Area
113 Pages Posted: 7 Jul 2022
Date Written: June 2022
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
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