Euro area inflation stability defies crisis, driven by unique dynamics.
Euro area inflation has not dropped significantly after the financial crisis. A study looked at inflation dynamics in different countries using a mix of past inflation and future inflation expectations. The impact of the economy's performance on inflation is important but not huge. Stable expectations, slow price changes, and a moderate effect of the economy on inflation explain why inflation stayed steady despite a weak economy. Differences in inflation across countries are partly due to the big economic hit from the crisis.