Euro Area Inflation After the Pandemic and Energy Shock: Import Prices, Profits and Wages PDF Download
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Author: Mr. Niels-Jakob H Hansen
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 22
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Book Description
We document the importance of import prices and domestic profits as a counterpart to the recent increase in euro area inflation. Through a novel consumption deflator decomposition, we show that import prices account for 40 percent of the average change in the consumption deflator over 2022Q1 – 2023Q1, while domestic profits account for 45 percent. The increase in nominal profits was largest in sectors benefiting from increasing international commodity prices and those exposed to recent supply-demand mismatches. While the results show that firms have passed on more than the nominal cost shock, and have fared relatively better than workers, the limited available data does not point to a widespread increase in markups. Looking ahead, assuming nominal wage growth of around 4.5 percent over 2023-24 – slightly below the level seen in Q1 2023 – and broadly unchanged productivity, a normalization of the profit share to the average level over 2015-19 will be necessary to achieve a convergence of inflation to target over the next two years. Monetary policy will thus need to remain restrictive to anchor expectations and maintain subdued demand such that workers and firms settle on relative price setting that is consistent with disinflation.
Author: Mr. Niels-Jakob H Hansen
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 22
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Book Description
We document the importance of import prices and domestic profits as a counterpart to the recent increase in euro area inflation. Through a novel consumption deflator decomposition, we show that import prices account for 40 percent of the average change in the consumption deflator over 2022Q1 – 2023Q1, while domestic profits account for 45 percent. The increase in nominal profits was largest in sectors benefiting from increasing international commodity prices and those exposed to recent supply-demand mismatches. While the results show that firms have passed on more than the nominal cost shock, and have fared relatively better than workers, the limited available data does not point to a widespread increase in markups. Looking ahead, assuming nominal wage growth of around 4.5 percent over 2023-24 – slightly below the level seen in Q1 2023 – and broadly unchanged productivity, a normalization of the profit share to the average level over 2015-19 will be necessary to achieve a convergence of inflation to target over the next two years. Monetary policy will thus need to remain restrictive to anchor expectations and maintain subdued demand such that workers and firms settle on relative price setting that is consistent with disinflation.
Author:
Publisher:
ISBN: 9789284689071
Category :
Languages : en
Pages :
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Book Description
This paper discusses theory and evidence on inflation expectations. While near-term measures of expected inflation in the euro area have increased, forecasters and financial markets expect inflation to decline back to the ECB's target by later this year. The paper provides some sceptical arguments in relation to the prominence given to measure of inflation expectations in monetary policy circles.
Author: Stefano Neri
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
The contribution of energy shocks to euro-area inflation in 2022 is larger than that of shocks to aggregate and supply, and to monetary policy. Had the ECB tightened monetary policy more than implied by the actual policy rate to counter the energy shocks, growth and inflation would have been lower. A New Keynesian model rationalises this result with a sufficiently large counter monetary policy shock.
Author: Juan Angel Garcia
Publisher: International Monetary Fund
ISBN: 1484370120
Category : Business & Economics
Languages : en
Pages : 59
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Book Description
Do euro area inflation expectations remain well-anchored? This paper finds that the protracted period of low (and below-target) inflation in the euro area since 2013 has weakened their anchoring. Testing their sensitivity to inflation and macroeconomic news, this paper expands existing results in two key dimensions. First, by analyzing all available (advanced) inflation releases. Second, the reactions of expectations are investigated at daily, time-varying and intraday frequency regressions to add robustness to our conclusions. Results point to a significant impact of inflation news over recent years that had not been observed before in the euro area.
Author: Thomas McGregor
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 46
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Book Description
We develop a bottom-up model of inflation in the euro area based on a set of augmented Phillips curves for seven subcomponents of core inflation and auxiliary regressions for non-core items. We use the model’s disaggregated structure to explore which factors drove the deterioration in forecasting performance during the pandemic period and use these insights to improve on the ability to forecast inflation. In the baseline, the projection for core inflation is centered above 3 percent at end-2023, while headline inflation is expected to drop quite sharply over 2023, with energy base effects pulling inflation down from the currently very elevated levels to below 3 percent by 2023q4. The confidence intervals around these projections are wide given elevated uncertainty. We argue that the bottom-up approach offers a useful complement to the forecasters toolbox – even in the current uncertain environment - by improving forecast accuracy, shedding additional light on the drivers of inflation and providing a framework in which to apply ex post judgement in a structured way.
Author: Peter J. N. Sinclair
Publisher: Routledge
ISBN: 1135179778
Category : Business & Economics
Languages : en
Pages : 402
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Book Description
Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Author: Moritz Ritter
Publisher: GRIN Verlag
ISBN: 3346731278
Category : Business & Economics
Languages : en
Pages : 22
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Book Description
Seminar paper from the year 2022 in the subject Economics - Other, grade: 1,00, Vienna University of Economics and Business , language: English, abstract: This paper aims at answering the question why inflationary dynamics vary so much within the same currency union. What challenges does this impose on the common monetary policy makers at the European Central Bank in Frankfurt, Germany? Rising price levels are back and are currently endangering the strong post-pandemic economic recovery. In the last months, inflation in eurozone countries has reached levels unprecedented for decades. This raises new challenges for monetary policy makers, when it comes to carefully assessing monetary policies future path, facing a potential tradeoff between safeguarding the post pandemic economic recovery and ensuring that inflation does not surge further. When analyzing current inflation numbers in eurozone it is conspicuous to see, that two countries diverge significantly: France and Estonia. Frances’s inflation of May 2022 was at 5.8%, whereas Estonia’s price levels have risen 20.1% compared to the previous year, almost four times as much as Frances’s price levels. But why is Inflation rising again? What are the fundamental reasons for such a significant divergence within Eurozone countries? Why does France seem to handle inflation so much better than Estonia?
Author:
Publisher:
ISBN: 9789284674497
Category :
Languages : en
Pages :
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Book Description
The COVID-19 pandemic will leave the euro area economy quite weak. It will be essential that both fiscal and monetary policies remain mobilised to achieve a sustainable recovery. Having indirectly financed a large share of new public debts, the ECB will have to tread a fine line between its price stability mandate and the need to avoid disrupting debt markets. The solution for the ECB is to use its announced strategy review to provide more clarity, both to its objectives and to its procedures. This includes adopting average inflation targeting, a formal relationship with member governments and the issuance of its own debt instruments. This document was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 19 November 2020.
Author: Chikako Baba
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 25
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Book Description
In 2021-22, inflation in Europe soared to multidecade highs, consistently exceeding policymakers’ forecasts and surprising with its wide cross-country dispersion. This paper analyzes the key drivers of the inflation surge in Europe and its variation across countries. The analysis highlights significant differences in Phillips curve parameters across Europe’s economies. Inflation is more sensitive to domestic slack and external price pressures in emerging European economies compared to their advanced counterparts, which contributed to a greater passthrough of global commodity price shocks into domestic prices, and, consequently, to larger increases in inflation rates. Across Europe, inflation also appears to have become increasingly backward looking and more sensitive to commodity price shocks since the onset of the COVID-19 pandemic. This finding helps explain why conventional (Phillips curve) inflation models consistently underpredicted the 2021-2022 inflation surge, although it remains too early to conclude there has been a structural break in the inflation process.
Author: Mahir Binici
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 42
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Book Description
Global inflation has surged to 7.5 percent in August 2022, from an average of 2.1 percent in the decade preceding the COVID-19 pandemic, threatening to become an entrenched phenomenon. This paper disentangles the confluence of contributing factors to the post-pandemic rise in consumer price inflation, using monthly data and a battery of econometric methodologies covering a panel of 30 European countries over the period 2002-2022. We find that while global factors continue to shape inflation dynamics throughout Europe, country-specific factors, including monetary and fiscal policy responses to the crisis, have also gained greater prominence in determining consumer price inflation during the pandemic period. Coupled with increasing persistence in inflation, these structural shifts call for significant and an extended period of monetary tightening and fiscal realignment.
