New Facts on Consumer Price Rigidity in the Euro Area

Abstract

Using CPI micro data for 11 euro area countries, covering 60% of the European consumption basket over the period 2010-2019, we document new findings on consumer price rigidity in the euro area: (i) on average 12.3% of prices change each month, compared with 19.3% in the United States; however, when price changes due to sales are excluded, the proportion of prices adjusted each month is 8.5% in the euro area versus 10% in the United States; (ii) the differences in price rigidity are rather limited across euro area countries and are larger across sectors; (iii) the median price increase (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 of the price change than for the frequency; (iv) the distribution of price changes is highly dispersed: 14% of price changes are below 2% in absolute values, whereas 10% are above 20%; (v) the frequency of price changes barely changes with inflation and it responds very little to aggregate shocks; (vi) changes in inflation are mostly driven by movements in the overall size of the price change; when this effect is broken down, variations in the share of price increases have a greater weight than changes in the size of the price increase or in the size of the price decrease. These findings are consistent with the predictions of a menu cost model in a low-inflation environment in which idiosyncratic shocks are a more relevant driver of price adjustments than aggregate shocks.

Keywords: price rigidity, inflation, consumer prices, micro data

JEL Classification: D40, E31