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The Spanish inflation differential: a never-ending story


The Spanish inflation differential: a never-ending story pdf (217 kB) Choose translations of the previous link 

Persistent inflation differentials in a monetary union, unless associated with Balassa-Samuelson effects, may end up affecting competitiveness in the tradable sector in the medium term and jeopardising real convergence. This could be the case in Spain, which still records inflation rates above the euro area average, despite having made significant progress in the last decade.

Apart from differences in the cyclical position and in the monetary stance, inflation differentials are explained to a large extent by malfunctioning goods and labour markets and, in particular, by an insufficient degree of competition in some sheltered sectors. Mark-ups in the non-tradable sector play a prominent role in explaining higher inflation rates in Spain compared to the euro area.

(Country Focus 12. July 2004. Brussels. Free.)

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