Breaking Bad: A Disaggregated Analysis of Inflation Inertia

Breaking Bad: A Disaggregated Analysis of Inflation Inertia
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Volume/Issue: Volume 2022 Issue 167
Publication date: September 2022
ISBN: 9798400219689
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Topics covered in this book

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Inflation , Economics- Macroeconomics , Economics / General , inflation inertia , consumption category , inflation dynamics , consumer price inflation , inflation expectation , Inflation , Inflation persistence , Consumer price indexes , Consumer prices , Global financial crisis of 2008-2009 , Global

Summary

The post-pandemic rise in consumer prices across the world has renewed interest in inflation dynamics after decades of global disinflation. This paper contributes to the literature by providing a granular investigation of inflation persistence at the city level in Lithuania during the period 2000–2021, as well as a comparison of inflation persistence at the country level vis-àvis the eurozone over the same period. Using disaggregate monthly data collected in five major cities, the empirical analysis finds a mixed and ambiguous picture of inflation persistence. While the headline inflation does not appear to exhibit a high degree of persistence, most consumption categories have significant persistence. As a result, shocks may not remain transitory and instead have persistent effects that could spillover across subcomponents depending on the size of the shock.