Report
Is inflation still a local phenomenon in the euro zone, or has it become a global phenomenon?
It is normally assumed that inflation in the euro zone is determined by domestic factors within the euro zone: unemployment, the capacity utilisation rate, productivity gains, the exchange rate (and therefore import prices). Monetary policy may then influence inflation by modifying the situation of the euro-zone economy (unemployment, etc.). But in a highly open econom y , with free movement of goods and services, one should rather expect inflation in the euro zone to be determined by the situation of the global economy: if, for example, the global capacity utilisation rate is low, the euro zone is easily able to import goods and services at low prices, resulting in no inflation in the euro zone even if its own capacity utilisation rate is high. If this is the case, then monetary policy is powerless to influence inflation in the euro zone. Econometric analysis confirms that in the recent period, core inflation in the euro zone has been determined much less by domestic cyclical factors and much more by global inflation.
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Natixis
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Patrick Artus
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