The European Central Bank published analysis in its Economic Bulletin on the changing gap between euro area Harmonised Index of Consumer Prices (HICP) services inflation and non-energy industrial goods (NEIG) inflation. It finds that the gap, which turned negative during the 2021-2022 goods-price surge, has moved back decisively into positive territory as NEIG inflation normalised while services inflation remained elevated, averaging about 2.5 percentage points in recent quarters. Historically, services inflation exceeded NEIG inflation by about 1.5 percentage points on average in 1999-2008 and by about 1.0 percentage point in 2008-2019, with the narrowing attributed mainly to lower services inflation amid subdued demand and weak wage growth after the financial and sovereign debt crises. The note links recent gap volatility to the stronger role of energy costs and global supply chains in goods prices versus wages and labour costs in services. A structural Bayesian vector autoregression indicates supply-side shocks related to energy and supply chains had larger and quicker but less persistent effects on NEIG inflation than on services; in the latest data these effects have largely faded in NEIG inflation, while services inflation still faces persistent effects and upward pressure from labour market shocks associated with strong wage growth. The ECB expects moderating energy prices, the gradual unwinding of supply shocks and lower wage growth to contribute to a slowdown in services inflation, while stressing that longer-run relative price trends remain uncertain and could be influenced by trade fragmentation, digitalisation and artificial intelligence adoption, demographic ageing, and climate change and mitigation policies such as higher carbon taxes.
European Central Bank 2025-03-20
European Central Bank research finds services and non-energy industrial goods inflation gap widened to 2.5 percentage points as services inflation hovers around 4%
The European Central Bank's Economic Bulletin notes the shift in the gap between euro area Harmonised Index of Consumer Prices services inflation and non-energy industrial goods inflation, now positive as NEIG inflation normalised. Historically, services inflation exceeded NEIG inflation, but recent volatility is linked to energy costs and global supply chains. The ECB expects moderating energy prices and supply shocks to slow services inflation, though long-term trends remain uncertain due to factors like trade fragmentation and climate policies.