Inflation in Portugal has surged significantly since July 2021, attaining levels not seen in the preceding thirty years. Initially, the hike in prices was restricted to a limited number of items, but the greater dynamism of the prices of more volatile goods, affected by the large shocks, was extended to the typically more stable components.

This increase is clear in the measure of underlying inflation named common inflation. This indicator identifies co-movements in the prices of a significant number of individual items, capturing the common component of inflation. The evolution of common inflation has a profile close to the one from inflation measured by the HICP in the period between 2002 and 2022. When inflation was low, there were brief and small fluctuations of prices around a relatively stable level of common inflation. This strongly contrasts with what happened in 2022, year in which both the year-on-year rate of change of the HICP and common inflation surged above 8%. This suggests that a broad range of prices increased simultaneously in this period, in part due to higher spillover effects in the transmission of inflationary pressures. 

For more details see “The inflation process in Portugal: the role of price spillovers”, Banco de Portugal Economic Studies, Vol. IX, No. 2, pp. 29-48.

Prepared by João Quelhas and Sara Serra. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem.

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