Why is inflation so high and so different in different euro area countries?

02/16/2023 / Press release

Banka Slovenije hosted a public lecture by Madis Müller, governor of the Bank of Estonia, entitled Why is inflation so high and so different in different euro area countries?

After a long period of low inflation, and even occasional deflation, the euro area finds itself suffering high inflation. According to Eurostat figures, annual inflation in the euro area as measured by the harmonised index of consumer prices stood at 8.5% in January, more than four times higher than its medium-term target rate, albeit down from its peak in October (10.6%). The majority of euro area countries have not faced such circumstances for decades.

Last year the Governing Council of the ECB embarked on the normalisation of monetary policy in response to the current situation. Alongside other measures, we raised the key interest rates for the first time in eleven years in July of last year, and have now raised them by a total of 3 percentage points at five consecutive monetary policy meetings of the Governing Council. At the same time, we gave guidance that the period of interest rate rises is not yet over. Despite slowing, headline inflation remains high, and the more stable components outside of energy and food prices show no signs of subsiding yet.

While the average figures are high, inflation varies greatly across euro area countries: from Spain and Luxembourg, which recorded rates of 5.8% in January, to the Baltic states, where inflation is around 20%

Banka Slovenije hosted Madis Müller, governor of the Estonian central bank, whose lecture addressed issues such as (i) why many countries are seeing record inflation after many years of low rates, (ii) why Estonia has one of the highest inflation rates in the euro area and the EU, and what measures it is taking to curb it, and (iii) where the differences in inflation rates between individual euro area countries come from.

The event was opened with an introductory speech by Boštjan Vasle, governor of Banka Slovenije. This was followed by a lecture by Madis Müller, of governor of the Estonian central bank (Eesti pank).

Opening speech by governor Boštjan Vasle

The speech by the governor of the Estonian central bank Madis Müller can be found here (the spoken word applies) and the presentation here.

Watch the full lecture in the video (YouTube).