Breaking Bad: A Disaggregated Analysis of Inflation Inertia

Abstract

Abstract The post-pandemic rise in consumer prices across the world has renewed interest in inflation dynamics after decades of global disinflation. This paper contributes to the literature by providing a granular investigation of inflation persistence at the city level in Lithuania during the period 2000–2021, as well as a comparison of inflation persistence at the country level vis-à-vis the eurozone over the same period. Using disaggregate monthly data on the Consumer Price Index (CPI) collected in five major cities, the empirical analysis finds a mixed and ambiguous picture of inflation persistence across all CPI subcomponents. While there are mixed results for persistence of the headline inflation, most consumption categories exhibit significant persistence. As a result, shocks may not remain transitory and instead have persistent effects that could spillover across subcomponents depending on the size of the shock.