Tradable and non-tradable prices in the UK and EC: measurement and explanation

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 01 June 1993

Working Paper No. 21
By C L Melliss

A marked divergence in inflation rates between the tradables and non-tradables sectors has been a feature of some EC economies, especially those of Italy, Spain and the UK, since the early 1980s. Sectoral productivity differences, international competitive pressures - perhaps linked to ERM membership, and government demand for non-tradables are possible reasons. Empirical estimates of sectoral price equations are presented for the UK, using especially constructed RPI-based series. Competing import prices, unit labour costs, and input prices are found to be the main determinants of tradable prices. For non-tradables government demand is important. Tests show that tradable prices Granger-cause non-tradable prices in France, Germany and Italy as well as the UK. 

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