ECB Refines Inflation Measures to Better Capture Domestic Price Pressures

The European Central Bank (ECB) has refined its measures of inflation to better capture domestic price pressures in the euro area. The central bank updated the indicators it uses to assess domestically driven and cyclical inflation, introducing methodological changes designed to make the measures more robust.

The ECB monitors a number of measures intended to separate inflationary pressures generated within the euro area from those resulting from external factors such as changes in import prices.

The central bank has updated the information used to determine how heavily individual Harmonised Index of Consumer Prices (HICP) items depend on imports, extending this data to 2023. The revised data also allowed the ECB to examine how the import content of HICP inflation changed during the coronavirus pandemic and subsequent inflation surge.

The analysis found a slight decline in import shares during the pandemic, followed by an increase afterwards, with higher import prices partly responsible for the rise.