Eurozone Sectoral Inflation Networks

This study explores the transmission of consumer inflation shocks across twelve inflation sectors in the Eurozone using a novel Gini-decomposed connectedness framework covering the period from February 1996 to November 2024. Our proposed framework decomposes connectedness measures into their symmetric and asymmetric components, capturing the distributional and welfare implications of sector-specific price changes. Our findings reveal that dynamic total connectedness is heterogeneous over time, with sharp increases following the Global Financial Crisis and the Russian-Ukrainian war in February 2022. Asymmetric spillovers dominate the inflation network, indicating that welfare losses can occur even when headline inflation remains stable. We identify Housing, Furnishings, Transport, and Restaurants and Hotels as the primary transmitters of inflationary shocks, while Education and Healthcare serve as net receivers. This structure suggests that inflation in essential and energy-intensive sectors drives price-setting in downstream services, aligning with ongoing concerns over housing affordability, rising utility costs, and the increasing perception of services like dining out as luxury expenditures. These results have important implications for monetary as well as fiscal policy since lower-income households are more exposed to essential goods and services, asymmetric inflation disproportionately burdens them, amplifying welfare disparities. Policymakers should therefore consider sectoral inflation dynamics and connectedness patterns when designing targeted interventions to mitigate inflation’s uneven impact across the population.