1.2 Inflation across countries

The ECB has the task of maintaining price stability in the euro area as a whole. This means that it focuses on the overall inflation rate of the euro area. As the euro area economy is made up of several different countries, it is not uniform – and the same is true for inflation. Inflation rates differ across euro area countries, sometimes significantly. This is normal and the same can be seen in large countries made up of multiple states. In fact, prices do not change in the same way across all regions of a country – for example in a booming city and a remote rural area.

Why do inflation rates differ? There are two basic explanations: different prices for similar products and different spending patterns of citizens.

1.2.1 What are the reasons for these differences?

There are several reasons why prices for similar products could differ across the euro area. Countries may be at different stages of the economic cycle or have different rates of growth or different patterns of developments in income and costs, for example rental costs for accommodation. Inflation could also differ because citizens in different countries buy different products and services.

The economic cycle has an impact on inflation. During an economic downturn the inflation rate decreases because there is less demand. As the incomes of households fall they spend less, which leads to decreases in the prices of products in response to this lower demand. Conversely, inflation increases during an economic upturn. If the timing of these stages of the economic cycle differs across countries, the inflation rates of the countries will temporarily differ. In addition, the magnitude and duration of the different stages of a cycle may differ across countries, which would also lead to differences in inflation rates.

Countries also have different general income levels. This may have an indirect impact on inflation through different consumption patterns. In some countries, for example, a higher percentage of spending is for food, which tends to have higher inflation rates. This then leads to an overall higher inflation rate in those countries, as food has a high “weight” in their shopping baskets.

There are also “administrative” reasons why inflation rates might differ across countries. Some prices are set or regulated by the government or local authorities (an example might be public transport prices). Changes in these “administered prices” – or in value added taxes – can have a temporary impact on inflation. For example, a decrease in value added tax will reduce prices and hence the inflation rate.

1.2.2 Inflation rates in the euro area

The overall euro area inflation rate is an average of the inflation rates of all the individual euro area countries. Looking at the four large economies in the euro area, in [Date 1] the inflation rate was [Value 1]% in Germany, [Value 2]% in France, [Value 3]% in Italy and [Value 4]% in Spain. Cross-country differences are also common for different categories of goods and services. Use the interactive map to see the ranges of inflation rates and compare them for different countries and categories.

As spending and consumption patterns differ across countries, the weights given to different groups of good and services also differ across countries. For example, the weight of the “food and non-alcoholic beverages” category in euro area inflation was [Value 5]% in [Date 2] and for “clothing and footwear” it was [Value 6]%. Use the interactive map to see how the weights differ across countries.

Click to enlarge and compare countries

Click to enlarge and compare countries