IMF Working Papers

Breaking Bad: A Disaggregated Analysis of Inflation Inertia

Author/Editor:

Serhan Cevik

Publication Date:

September 2, 2022

Electronic Access:

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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.

Series:

Working Paper No. 2022/167

Frequency:

regular