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© 2022 International Monetary Fund
WP/22/167
IMF Working Paper
European Department
Breaking Bad: A Disaggregated Analysis of Inflation Inertia
Prepared by Serhan Cevik1
Authorized for distribution by Alfredo Cuevas
September 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
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-à -vis 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.
| ISBN | 978-1-51358-###-# (Paper) 978-1-51358-###-# (ePub) 978-1-51358-###-# (PDF) |
| JEL Classification Numbers: | C22; C23; E31; E32 |
| Keywords: | Inflation persistence; Lithuania; euro area; transition economies |
| Author’s E-Mail Address: | scevik@imf.org |
| ISBN | 978-1-51358-###-# (Paper) 978-1-51358-###-# (ePub) 978-1-51358-###-# (PDF) |
| JEL Classification Numbers: | C22; C23; E31; E32 |
| Keywords: | Inflation persistence; Lithuania; euro area; transition economies |
| Author’s E-Mail Address: | scevik@imf.org |
The author would like to thank Alfredo Cuevas, Borja Gracia, Svitlana Maslova, Jan Strasky and the participants of seminars at the Bank of Lithuania and the European Department of the International Monetary Fund (IMF) for their insightful comments and suggestions, and Sadhna Naik for excellent research assistance.