Consumer price adjustment under the microscope: Germany in a period of low inflation

Abstract

We analyse the adjustment of retail and services prices in a period of low inflation, using a set of individual price data from the German Consumer Price Index that covers the years 1998 to 2003. We strong find evidence of time- and statedependent price adjustment. Most importantly, the differences in “unconditional” sectoral price flexibility are found to be linked to input price volatility. JEL Classification: E31, D43, L11consumer price index, Germany, price flexibility, price rigidity