Price Setting in the Euro Area: Some Stylised Facts from Individual Producer Price Data

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper documents producer price setting in 6 countries of the euro area: Germany, France, Italy, Spain, Belgium and Portugal. It collects evidence from available studies on each of those countries and also provides new evidence. These studies use monthly producer price data. The following five stylised facts emerge consistently across countries. First, producer prices change infrequently: each month around 21% of prices change. Second, there is substantial cross-sector heterogeneity in the frequency of price changes: prices change very often in the energy sector, less often in food and intermediate goods and least often in non-durable nonfood and durable goods. Third, countries have a similar ranking of industries in terms of frequency of price changes. Fourth, there is no evidence of downward nominal rigidity: price changes are for about 45% decreases and 55% increases. Fifth, price changes are sizeable compared to the inflation rate. The paper also examines the factors driving producer price changes. It finds that costs structure, competition, seasonality, inflation and attractive pricing all play a role in driving producer price changes. In addition producer prices tend to be more flexible than consumer prices. Terms of use: Documents in EconStor may NON-TECHNICAL SUMMARYIn this paper, we document producer price setting in 6 countries of the euro area: Germany, France, Italy, Spain, Belgium and Portugal. We collect evidence from available studies of the Inflation Persistence Network (a network of researchers of the Eurosystem) on each of those countries and also provide new evidence. These studies use monthly producer price data from price records used to construct official producer price indexes. The following five stylised facts emerge consistently across countries. First, producer prices change infrequently: each month around 21% of prices change. Second, there is substantial cross-sector heterogeneity in the frequency of price changes: prices change very often in the energy sector, less often in food and intermediate goods and least often in non-durable non-food and durable goods.Third, countries have a similar ranking of industries in terms of frequency of price changes.Fourth, there is no evidence of downward nominal rigidity: price changes are for about 45% decreases and 55% increases. Fifth, price changes are sizeable compared to the inflation rate.We also examine the factors driving producer price changes such as costs structure,...

Identifying Price Reviews by Firms: An Econometric Approach

“…The average frequency of price changes in the sample is 21.0% per month, which is close to the figures provided in previous studies about producer prices in France and the Euro area (Vermeulen et al. , Loupias and Sevestre ). As Table shows, changes in production costs and changes in the production level are significantly more frequent than price changes.…”

“…, Vermeulen et al. , Loupias and Sevestre ). Another well‐established fact is that most firms declare they review their prices only infrequently (Fabiani et al.…”

More Facts About Prices: France before and during the Great Recession

“…The proportion of small prices is quite large in France: 11.2% of price changes in absolute values are below 1% and around 23% of price changes are below 2%. By comparison, Klenow and Kryvtsov (2008) on U.S. price data find that 25% of price changes are below 2.5% in absolute values and Vermeulen et al (2012) find that a quarter of price increases and decreases in absolute values are smaller than 1.5% on producer prices. Eichenbaum et al (2014) recently challenge this result for the United States.…”

What Survey Data Reveal about Price and Wage Rigidity in Portugal

“…The speed and magnitude of the adjustment in the economy reflect to a large extent the degree of price and wage rigidities. Regarding the degree of price rigidity, previous studies conducted on the basis of micro quantitative and survey data revealed a considerable degree of price stickiness, measured by the frequency of price changes, both in Portugal and in the euro area as a whole, in particular when compared with the USA (see Fabiani et al, 2007 andMartins, 2010 for survey evidence, and Vermeulen et al, 2012 andDias et al, 2008 for micro-quantitative evidence). The information collected in the survey shows that around 70 per cent of firms do not change prices more than once a year; with this percentage being particularly high in the case of business services (Figure 1).…”