New Facts on Consumer Price Rigidity in the Euro Area

109 Pages Posted: 18 Jul 2022

See all articles by Erwan Gautier

Erwan Gautier

Banque de France

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

Date Written: July 11, 2022

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

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 (July 11, 2022). Banco de Espana Working Paper No. 2225, Available at SSRN: https://ssrn.com/abstract=4161422 or http://dx.doi.org/10.2139/ssrn.4161422

Erwan Gautier (Contact Author)

Banque de France ( email )

Paris
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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