Price setting in the euro area: insights from the PRISMA research network
PRISMA (Price-Setting Microdata Analysis Network), a research network created by the European System of Central Banks (ESCB), has collected and studied detailed price data to expand knowledge of price setting by firms in the euro area. One of the main sources used comprises the monthly microdata underlying the consumer price index. The national statistical institutes of Austria, Belgium, France, Germany, Greece, Italy, Latvia, Lithuania, Luxembourg, Slovakia and Spain provided these data to their country’s national central bank. The 11 countries represent about 90 % of the euro area’s HICP.
Using a harmonised method, one of the PRISMA research projects (Gautier et al., 2022) calculates for each country the percentage of observations corresponding to a price change within a detailed product category, and the size of price increases and decreases. On average, 12 % of prices in the euro area change in any given month. For comparison, in the United States prices are adjusted more frequently (19 %). However, sales and promotions are more common in the United States. If these are excluded, the results are similar for the two economies.
Price increases are more frequent than price decreases. However, about one-third of all price changes are decreases and they are on average larger in size (13 % as opposed to 10 % for price increases).
Most price adjustments take place in January. This is not entirely attributable to sales and promotions. In particular, service prices tend to be updated much more often in January.
The frequency and size of price adjustments vary greatly from one sector to another. For example, every month 6 % of service prices change, whereas this figure increases to 31 % in the case of unprocessed food.
In addition to consumer prices, PRISMA studies producer prices, which undergo smaller but more frequent changes. PRISMA also covers the year 2020, when the pandemic started. Consumption was forced to change, and in some countries the frequency of price adjustment increased.