ECB | European Central Bank
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Domestic and cyclical inflation in the euro area
The European Central Bank (ECB) targets headline inflation but also monitors domestically determined inflation. This is because domestic inflation influences monetary policy transmission and gauges underlying price pressures. The ECB uses "domestic inflation" and "Supercore" inflation as key proxies for this domestic component. "Domestic inflation" focuses on items with a low import share. "Supercore" inflation tracks items sensitive to the business cycle. This paper details the methodologies for these indicators and updates their input data. It also proposes refinements for greater robustness in future updates. Changes due to the new ECOICOP v2 classification for HICP compilation are explained. For domestic inflation, updated import share data and methodological changes, like a constant item composition, are introduced. For Supercore inflation, challenges in identifying a cyclical indicator for the euro area are discussed. The paper proposes refining the previous methodology, maintaining a Phillips curve approach at its core. Finally, updated indicators and their key properties are presented for both measures.