07.10.2024.

Consumer price rigidity in the Baltic states during periods of low and high inflation∗

Working Paper 3/2024

Illustrative photo cover
Photo by: Latvijas Banka

The Baltic states experienced the most substantial consumer price inflation of any of the EU countries shortly after the COVID-19 pandemic. The year-on-year all-items inflation rate averaged 11% from January 2021 to September 2023, peaking at around 22% in late 2022. This study examines how consumer price rigidity in the region during this period of high inflation differed from the preceding period of low inflation in 2019-2020. We use the detailed price records that underlie the official consumer price indexes to assess the frequency and the size margins of price changes. The average frequency of price changes increased by about four percentage points when inflation was high, as an increase of five percentage points in the frequency of price increases combined with a fall of one percentage point in the frequency of price cuts. The average size of price changes increased by 2.8 percentage points, mainly because the share of price increases changed. We further show that structural shocks in energy prices and aggregate demand contributed significantly to fluctuations in the inflation rate through the frequency of price changes during the period of high inflation. All this points to pricing being state-dependent in the Baltic states.

Keywords: consumer price rigidity, price-setting, high inflation, frequency of price changes.

JEL Classification: D40, E31.

 

*We thank Jaanika Meriku¨ll, anonymous referees, and participants at the Baltic Central Banks’ Research Seminar in 2023, the 6th Baltic Economic Conference, and seminars at Latvijas Banka and Eesti Pank for their helpful comments. The views expressed here are those of the authors and do not necessarily represent the official views of Eesti Pank, Latvijas Banka, Lietuvos Bankas, or the Eurosystem. We are grateful to the statistical offices of Estonia, Latvia, and Lithuania for providing access to the consumer price micro data.

APA: Fadejeva, L., Jouvanceau, V., Paulus, A. (2025, 07. feb.). Consumer price rigidity in the Baltic states during periods of low and high inflation∗. Taken from https://www.macroeconomics.lv/node/6558
MLA: Fadejeva, Ludmila. Jouvanceau, Valentin. Paulus, Alari. "Consumer price rigidity in the Baltic states during periods of low and high inflation∗" www.macroeconomics.lv. Tīmeklis. 07.02.2025. <https://www.macroeconomics.lv/node/6558>.

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