Euro area inflation in the era of COVID‐19: A permanent or a transitory phenomenon?

Abstract

AbstractThe goal of this paper is to test the mean reversion process of the inflation rate in the Eurozone during the COVID‐19 pandemic crisis. The study uses weekly data on consumer prices (measured through the Harmonized Consumer Price Index), spanning the period from 2020 to the mid of 2022. The findings document that euro area inflation follows a mean non‐reverting process, with most of its components following a similar pattern. Moreover, sub‐period analysis illustrates that the vaccination process against the pandemic gives a transitory character to euro area inflation, which, however, is dominated by the lockdown and the Omicron mutation periods. Finally, comparative analysis illustrated the differences of inflation persistence during the Global Financial Crisis of 2007–2009.