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Monitoring the exchange rate pass-through to inflation

Author

Listed:
  • Hahn, Elke
  • O'Brien, Derry

Abstract

Exchange rate developments can play an important role in shaping the outlook for HICP inflation. As a change in the exchange rate can affect consumer prices with considerable delays and as the impact can depend on the economic situation at the time, assessing the exchange rate pass-through requires constant monitoring. Between April 2017 and May 2018, the exchange rate of the euro appreciated by about 8% in nominal effective terms and by about 10% against the US dollar. This box briefly recalls how exchange rate changes are transmitted to consumer prices in the euro area. The box also looks at indicators at different stages of the pricing chain to gauge the degree of the pass-through at the current juncture. The focus is on the monitoring of the pass-through to exchange rate-sensitive components of the HICP excluding energy and food. JEL Classification: C32, E31

Suggested Citation

  • Hahn, Elke & O'Brien, Derry, 2018. "Monitoring the exchange rate pass-through to inflation," Economic Bulletin Boxes, European Central Bank, vol. 4.
    • Handle: RePEc:ecb:ecbbox:2018:0004:3
    Note: 854549
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    More about this item

    Keywords

    euro area inflation; exchange rate pass-through;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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