Inflation divergence in the euro area: nature and implications

Not only has inflation in the euro area accelerated to historical levels in 2022, but also the dispersion of inflation across Member States has risen strongly. We investigate the nature of this dispersion and find that it is driven by energy and food prices, whereas differences in core inflation are not unusually high, except for the Baltic countries. While large differences in inflation can lead to an undesirable divergence in growth trajectories, this cannot be addressed by the common monetary policy which should strictly focus on price stability in the euro area as a whole.