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The inflation basket case

Merler, Silvia, (2017), "The inflation basket case", Bruegel, 17 Μαρτίου

ECB President Draghi highlighted that there are no signs yet of a convincing upward trend in underlying inflation. Indeed, this stands out clearly if we look more in detail at the composition of the basket. Figure 1 shows the headline and core inflation rates for the euro area, together with the share of items in the Harmonised Consumer Price Index (CPI) basket that have experienced inflation rates below 1 and below zero. While the headline inflation rate for the EA has increased from 0.6% in November 2016 to 1.8% in January 2017 and 2% in February, the percentage of items that are in deflation has remained relatively high. As of February 2017, 21.3% of the EA HCPI basket was in deflation (up from 20.2% in January) and 47% of items experienced price growth below 1%.

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