The Conference on the Future of Europe Plenary session on 8-9 April debated concrete proposals.
The Chairs and spokespersons of nine Working Groups tabled consolidated draft proposals, grouped by theme, to the Conference Plenary. The proposals were mainly based on the recommendations of European Citizens’ Panels, as well as national panels, and enriched by ideas from the Multilingual Digital Platform. These proposals were discussed by all Plenary Members.
Vice-President for Democracy and Demography, Dubravka Šuica, said: “We are now in the decisive stage of the Conference on the Future of Europe, where dialogue and collaboration are more important than ever. I was heartened to see this in action during the Plenary session. The progress we have made so far has exceeded my expectations, in particular due to the exceptional commitment and hard work of our citizens. I look forward to working together over the coming weeks towards the final result.”
Next steps
The final Conference Plenary session is scheduled for 29-30 April in Strasbourg, where proposals are expected to be approved by the Plenary on a consensual basis. The Conference’s Executive Board will include these proposals in the Conference’s final report, which will be delivered to the Presidents of the EU institutions on 9 May in Strasbourg, at the ceremony that will bring the Conference to a close.
For More Information
Recordings of the plenary sessions by topic are available on the following links:

Health
European Democracy
Migration
Values and rights, rule of law, security
Education, culture, youth
Stronger economy, social justice and jobs
Climate change and the environment
EU in the World
Digital Transformation

You can watch recordings from the Working Group meetings on EBS. The press conference with the three co-chairs can be found here.
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The European Commission has approved, under the EU Merger Regulation, the proposed acquisition of Meggitt by Parker. The approval is conditional on full compliance with commitments offered by Parker.
Executive Vice-President Margarethe Vestager, in charge of competition policy, said: “Manufacturers of civil and military aircraft depend on competitive supply chains for all aerospace components. Parker and Meggitt are leading global suppliers of wheels and brakes for a range of aircraft types, including military helicopters and drones. The remedy package offered by Parker will preserve competition in these markets and ensure that aerospace and defence customers have access to sufficient choice of component suppliers and will continue benefitting from competitive prices.”
Parker and Meggitt are both leading global aerospace component suppliers, with wide product portfolios. They compete among others in the design, manufacture and supply of aircraft wheels and brakes and aerospace pneumatic valves.
The Commission’s investigation
Given the parties’ leading positions, the Commission investigated the impact of the proposed acquisition on competition in the markets for the design, manufacturing and supply of aircraft wheels and brakes for certain types of aircraft.
The market investigation revealed that the transaction would further reduce the already limited number of suppliers of wheels and brakes for small general aviation aircraft, business jets, civil and military helicopters, and military fixed-wing drones. The merged entity would have been further strengthened as the largest supplier in these markets. This would have impacted the prices and innovation in these important components. Competitors generally have a smaller presence in the supply of wheels and brakes for these aircraft types and often do not offer all types of brakes.
The Commission did not find competition concerns in other aerospace component markets in which the parties compete, including aerospace pneumatic valves, as sufficient alternative suppliers would remain active following the transaction.
The proposed remedies
To address the Commission’s competition concerns, Parker committed to divest its entire aircraft wheels and brakes division. The commitments include the divestment of Parker’s plant in Ohio, US, and a range of provisions to ensure that a buyer can operate the business viably and independently from the merged entity.
These commitments fully remove the overlaps in the design, manufacturing and supply of aircraft wheels and brakes between Parker and Meggitt, globally. The commitments therefore ensure that the current level of competition is maintained in the markets where the Commission identified competition concerns, thus preserving customer choice.
The Commission therefore concluded that the proposed transaction, as modified by the commitments, would not raise competition concerns. The decision is conditional upon full compliance with the commitments.
Companies and products
Parker, headquartered in the US, is active globally in the design, manufacture and supply of motion and control technologies and systems, and in the provision of precision engineered solutions for a variety of mobile, industrial and aerospace markets.
Meggitt, headquartered in the UK, is active globally in the design, manufacture and supply of components and sub-systems for aerospace and defence markets, and selected energy applications.
Merger control rules and procedures
The transaction was notified to the Commission on 21 February 2022.
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the European Economic Area or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II). This deadline is extended to 35 working days in cases where remedies are submitted by the parties, such as in this case.
More information will be available on the competition website, in the Commission’s public case register under the case number M.10506.
Compliments of the European Commission.
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In order to secure the EU’s energy supply at affordable prices in the current geopolitical context and to phase out dependency on Russian gas, the European Commission has established with the Member States an EU Platform for the common purchase of gas, LNG and hydrogen. A first virtual meeting, chaired by Director General for Energy, Ditte Juul Jørgensen, was held yesterday, with representatives of the 27 Member States.
As agreed by the Heads of State and Government in the European Council on 25 March, it will be a voluntary coordination mechanism, bringing together the Commission and the Member States, supporting the purchase of gas and hydrogen for the Union, by making optimal use of the collective political and market weight of the EU.
The Platform will help ensuring security of supply, in particular for the refilling of gas storage facilities in time for next winter, in line with the Commission’s proposal presented on 23 March. It will also see to an optimal use of existing gas infrastructure. In addition, it will enhance long-term cooperation with key supply partners, extending also to hydrogen and renewables, possibly through Memoranda of Understanding.
Frans Timmermans, Executive Vice-President for the European Green Deal, said: “It is abundantly clear that the European Union is too dependent on Russia for our energy needs. The answer lies in renewable energy and, in the more immediate term, diversification of supply. Through the EU Energy Purchase Platform Member States can now work together on purchasing gas from other suppliers and developing an international market for hydrogen, to the benefit of all countries. For the EU, replacing gas imports from Russia will help to end our over-dependence and provide much needed room to manoeuvre”.
Kadri Simson, Commissioner for Energy, said: “The Russian aggression against Ukraine has radically changed the geopolitical context of Europe’s energy security. We have decided to end our dependence on Russian fossil fuels and need to partly replace them with alternative sources of supply. To succeed in this task, the EU must use its collective political and market power on global gas markets. With the EU Energy Platform, we build on the experience gained over the past months to ensure a coordinated European approach to securing gas imports at the best possible conditions.”
The EU Energy platform will ensure cooperation in areas where it is more effective to act in a coordinated way at EU level rather than at national level. These areas include:

Demand pooling: The Platform will work with Member State representatives to maximise leverage to attract reliable supplies from global markets and at stable prices that reflect the predictability and the size of the common EU market. This will allow moving, when appropriate, towards joint purchases.

Efficient use of EU gas infrastructure: the Platform will coordinate actions to maximise Liquefied Natural Gas imports absorption, comply with gas storage obligations [1] and ensure security of gas supply. It will also help identifying additional infrastructure needs, suitable to cater for future hydrogen use.

International outreach: Considering the need to secure significant volumes of non-Russian gas already in 2022 and the global market tightness, the EU Energy Purchase Platform will also coordinate and reinforce EU’s international outreach to gas partners and markets. This will include the main LNG exporting and importing countries with a view to define and agree on potential arrangements for diversification, including towards hydrogen. This work will take account of partners’ supply capacities, long-term contracts and existing as well as planned interconnections and storage infrastructure in the EU. The recently announced EU–US Joint Statement on European Energy Security is a guiding example.

The Platform will build on existing EU policy initiatives with Member States, transmission system operators, associations and market players. It will make use of existing coordination structures for security of supply (Gas Coordination Group, including network of gas operators ENTSO-G) and the regional assessment of energy infrastructure (e.g. High-Level Groups: CESEC, BEMIP, South West Europe).
The Commission will operate the Platform covering all aspects of the value chain, global supply and demand, market mechanisms, infrastructure and security of supply.
Working with EU industry
To ensure access to market insights and expertise on the gas supply chain, the Commission will establish a dedicated consultative working group consisting of industry experts. The group will have an advisory role and operate in compliance with EU antitrust rules, with strong safeguards against conflict of interests.
Compliments of the European Commission.
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Speech by Verena Ross, ESMA Chair |
Thank you for inviting me to the launch of the EU Digital Finance Platform. Before we draw this very productive and interesting event to a close, I’d like to share a few reflections with you.
Today we have launched an important joint initiative between the EC, ESAs and national competent authorities. As proposed by the EU Digital Finance Strategy, the Digital Finance Platform will support financial innovation and embrace digital technologies, for the good of our economy and EU citizens.
One effect of ongoing platformisation of financial services in Europe is to make it easier to access various offers, compare services and get information at the touch of a button. By the same token, the EU Digital Finance Platform will bring together a wealth of information, data and communications in one place, supporting innovative firms and regulators. It will build links between financial authorities and the industry.
This initiative is about us regulators being innovative ourselves. We are adapting the existing regulatory and supervisory tools to the increasingly digitalised financial markets and developing new ways of cross-border cooperation.
Supporting innovation facilitators
The Digital Finance Platform will primarily support cross-border activities of national financial facilitators in their engagements with innovative FinTechs in Europe. And when I talk about innovation facilitators here, I use the term broadly. I have in mind any sort of regulatory approach to innovation that involves a dialogue between regulators and market participants, whether the latter are regulated or unregulated. Fundamentally, innovation facilitators help us as regulators to create a dialogue and encourage openness to new ideas.
National innovation facilitators include hubs, sandboxes and accelerators. The events they host have a range of eye-catching names – such as techsprints, hackathons and buildathons. But they all have a common aim to make regulation and supervision support innovation, while staying alert and responsive to emerging risks. Innovation facilitators therefore promote smart regulation, where innovation and supervision go hand in hand.
When someone has a good idea, it tends to spread quickly, and innovation facilitators are no exception. All Member States have now established innovation hubs or sandboxes. They see that this approach in regulating innovation brings major benefits.
Building on the work of the European Forum of Innovation Facilitators (EFIF)
As you know innovation facilitators operate at the national level in Europe. Coordinating their activities at the EU level is key to ensure supervisory convergence. We should aim to find common approaches to innovation across the Union where possible. There is already a mechanism of coordination between hubs and sandboxes in place – the European Forum of Innovation Facilitators (EFIF). Established by the EC and the ESAs in 2019 following the joint ESA report on innovation facilitators, it has brought together firms and regulators. The Digital Platform we are launching today will complement and enhance the work of the EFIF by supporting cross-border activities of the national innovation facilitators.
The EFIF was created to promote greater coordination and cooperation between national innovation facilitators and the EU-level authorities and with that support the scaling up of FinTech across the single market. And it has proved to be a success, on which the Digital Finance Platform will be able to build.
In the past three years the EFIF has organised 12 meetings bringing together European and national competent authorities, experts and FinTechs. Although the EFIF is a voluntary forum, its meetings have consistently enjoyed excellent participation – around 60 attendees at a time
– and strong positive feedback from those involved. Representatives of national financial facilitators have shared their experiences and technological expertise from their engagements with innovative firms through regulatory sandboxes and hubs. NCAs have been able to discuss common approaches on the regulatory treatment of innovative products and services. The result has been stronger coordination and closer supervisory convergence.
The aim of the EFIF is also to help digital financial service scale up across the single market. As part of this, it monitors for potential regulatory obstacles to the scaling up of technology- enabled products, services and business models.
EFIF meetings have covered many different areas of innovation. To give you a flavour of the breadth of work, let me list a few: tokenisation, DLT, stablecoins, AI, Big Data, platformisation, green FinTech, Open Finance, APIs and crypto-assets. Additionally, some meetings have examined topical themes, such as how FinTech has been affected by the pandemic, and how the Covid-19 response in turn has shaped the FinTech market.
An important focus across meetings has been to examine specific case studies. For example, delegates have examined many RegTech business models and solutions. Supervisors have been able to collaborate in responding to firm -specific issues, for example questions about licensing.
Enabling the Cross-Border Testing Framework
The Cross-Border Testing Framework is one of the most prominent projects of the EFIF in the past year, and links closely to the Digital Finance Platform. The Framework assists innovative FinTechs in their engagement with innovation facilitators cross-border through digital tools.
The ultimate purpose of this initiative is to help innovators save time and money as they deliver new products and services to the market. At the same time, the Framework helps regulators and supervisors identify emerging risks. Which new products and services should be regulated through current rules? Where might new rules be needed? Answering these questions is a core part of our work, though of course it is no easy task.
You have already heard much discussion this morning of the Framework’s goals and features. So I will simply reiterate our common aspiration for the Framework – to be a success and be another solid building block of the European Single Market.
The Digital Platform that we are inaugurating today will act as the basis for the Cross-Border Testing Framework. Today we are therefore marking not only the start of the Digital Platform but also the opening of the Cross-Border Testing Framework.
An ambitious agenda for the Digital Finance Platform
Let me conclude by taking stock of where we are and then turning to the future. The EU Digital Finance Platform is a timely and promising initiative. ESMA, together with the other ESAs, has supported and will continue to support it. A key part of this support has been the information and data needed to design it, which we have been collecting from the market and from other authorities. As of today, the Platform will support several functionalities, including the European Fintech Map, Sharing Knowledge and Policy Corner. It provides a single access point for all the information related to facilitating financial innovation in Europe. It will also enable the functionalities related to cross-border testing, as I mentioned earlier.
But the ambition for the Platform is greater than this. In phase 2 the Platform will host a Data Hub to be used by the industry and supervisory authorities to enhance their toolkit and their capacities in testing innovations. We look forward to working on the Data Hub with the Commission and making the Digital Platform a tool that will be recognised and used by FinTech in Europe.
With that exciting outlook, I close this launch event and thank you for your participation and attention.
Compliments of the European Securities and Markets Authority (ESMA).
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Today, the Commission is presenting proposals to update and modernise the Industrial Emissions Directive, key legislation to help prevent and control pollution. Updated rules will help guide industrial investments necessary for Europe’s transformation towards a zero-pollution, competitive, climate-neutral economy by 2050. They aim to spur innovation, reward frontrunners, and help level the playing field on the EU market. The revision will help provide long-term investment certainty, with first new obligations on industry expected in the second half of the decade.  
The revision builds on the overall approach of the existing Industrial Emissions Directive, which currently covers some 50,000 large industrial installations and intensive livestock farms in Europe. These installations need to comply to emissions conditions by applying activity-specific ‘Best Available Techniques’. These techniques are determined together by industry, national and Commission experts, and civil society. The new rules will cover more relevant sources of emissions, make permitting more effective, reduce administrative costs, increase transparency, and give more support to breakthrough technologies and other innovative approaches.  
Executive Vice-President for the European Green Deal Frans Timmermans said: “By 2050, economic activity in the European Union should no longer pollute our air, water and the wider environment. Today’s proposals will enable important reductions of harmful emissions coming from industrial installations and Europe’s largest livestock farms. By modernising Europe’s industrial emissions framework now there is certainty about future rules to guide long-term investments, increase Europe’s energy and resource independence, and encourage innovation.”  
Commissioner for the Environment, Oceans and Fisheries Virginijus Sinkevičius said: “These new rules will enable large industrial plants and intensive livestock farming to play their part in achieving the objective of the European Green Deal and its zero-pollution ambition. Solely from action on livestock farms, benefits to human health would amount to at least €5.5 billion per year. The changes will create more jobs, as the EU’s eco-innovation sector has shown successfully in the past. Measures that proactively tackle the pollution, climate and biodiversity crises can make our economy more efficient and more resilient.”  
Updating a proven approach for the long term
Following extensive consultation with industry and stakeholders and a thorough impact assessment, the existing framework will be enhanced with new measures to boost its overall effectiveness. The main changes include: 

More effective permits for installations. Instead of settling for the least demanding limits of the best available techniques, as some 80% of installations do currently, permitting will have to assess the feasibility of reaching the best performance. It will also tighten the rules on granting derogations by harmonising the assessments required and securing a regular review of derogations granted.  

More help for EU innovation frontrunners. As an alternative to permits based on well-established best techniques, frontrunners will be able to test emerging techniques, benefitting from more flexible permits. An Innovation Centre for Industrial Transformation and Emissions (INCITE) will help industry with identifying pollution control solutions. Finally, by 2030 or 2034 operators will need to develop Transformation Plans for their sites to achieve the EU’s 2050 zero pollution ambition, circular economy and decarbonisation aims.  

Supporting industry’s circular economy investments. New best available techniques could include binding resource use performance levels. The existing Environmental Management System will be upgraded to reduce the use of toxic chemicals.  

Synergies between depollution and decarbonisation. Energy efficiency will be an integral part of permits, and systematic consideration will be given to technological and investment synergies between decarbonisation and depollution when determining best available techniques.  

The new rules will also cover more installations, notably: 

More large-scale intensive livestock farms. Under the new rules, the largest cattle, pig, and poultry farms would be gradually covered: about 13% of Europe’s commercial farms, together responsible for 60% of the EU’s livestock emissions of ammonia and 43% of methane. The health benefits of this extended coverage are estimated at more than €5.5 billion per year. As farms have simpler operations than industrial plants, all farms covered will benefit from a lighter permitting regime. The obligations stemming from this proposal will reflect the size of farms as well as the livestock density through tailored requirements. The Common Agricultural Policy remains a key source of support for the transition. 

Extraction of industrial minerals and metals and large-scale production of batteries. These activities will significantly expand in the EU to enable the green and digital transitions.  This requires that the best available techniques are employed to ensure both the most efficient production processes and the lowest possible impacts on the environment and human health. The governance mechanisms of the Directive that closely associate industry experts to the development of consensual and tailored environmental requirements, will support the sustainable growth of these activities in the Union.  

Finally, the new rules will increase transparency and public participation in the permitting process. In addition, the European Pollutant Release and Transfer Register will be transformed into an EU Industrial Emissions Portal where citizens will be able to access data on permits issued anywhere in Europe and gaining insight into polluting activities in their immediate surroundings in a simple way.  
Next steps
The Commission proposal stipulates that Member States will have 18 months to transpose this directive into national legislation, after the proposal is finally adopted by the European Parliament and by the Council. After that, the Best Available Techniques will be developed and once adopted by the Commission, industrial operators will have four years and farmers three years to comply. 
Background
Industrial activities, like electricity and cement production, waste management and incineration, and the intensive rearing of livestock, are responsible for emissions of harmful substances to air, water and soil. These emissions include sulphur oxides, nitrogen oxides, ammonium, dust and mercury and other heavy metals. Pollution caused by them can lead to health problems such as asthma, bronchitis and cancer, and it generates costs measured in billions of euro and hundreds of thousands of premature deaths each year. Industrial emissions also damage ecosystems, crops, and the built environment.  
Thanks to the Industrial Emissions Directive, in the last 15 years emissions to air for many pollutants have been reduced by between 40% and 75% from Europe’s largest industrial plant and intensive livestock farms. Heavy metals emissions to water have also declined by up to 50% during this period.  
Despite successes in curbing emissions, the over 50,000 industrial installations covered still account for around 40% of greenhouse gas emissions, over 50% of total emissions to air of sulphur oxides, heavy metals and other harmful substances and around 30% of nitrogen oxides and fine particulate matter air emissions, warranting further action. 
Compliments of the European Commission.
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As part of the ongoing work of the OECD/G20 Inclusive Framework on BEPS to implement the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, the OECD is seeking public comments on the Draft Model Rules for Domestic Legislation on Scope under Amount A of Pillar One.
The purpose of the scope rules is to determine whether a Group will be in scope of Amount A. The rules are designed to ensure Amount A only applies to large and highly profitable Groups and have been drafted to apply in a quantitative manner, such that they are readily administrable and provide certainty as to whether a taxpayer is within scope. The Draft Rules for the Exclusions for Extractives and Regulated Financial Services will be released for public consultation at a later date.
The Inclusive Framework on BEPS has agreed to release this public consultation document (également disponible en français) in order to obtain public comments, but the draft rules do not reflect consensus regarding the substance of the document. The stakeholder input received on the Draft Model Rules for Domestic Legislation on Scope will assist members of the Inclusive Framework on BEPS in further refining and finalising the relevant rules.
Interested parties are invited to send their written comments* no later than 20 April 2022. Instructions for submitting comments can be found in the consultation document.
Further information on the two-pillar solution for addressing the tax challenges arising from digitalisation and globalisation of the economy is available at https://oe.cd/bepsaction1.
Contact:

For further information or inquiries, please contact tfde@oecd.org

Compliments of the OECD.
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Joint statement by Austria, Germany, Denmark, Spain, Finland, Ireland, Luxembourg, Latvia, the Netherlands, Sweden, Slovenia |
In the wake of the Russian invasion of Ukraine, the world faces a new geopolitical reality. EU has shown historic unity and taken decisive action in response to Russia’s aggressive behavior.
We must maintain the same unity and determination in order to become independent of Russian fossil fuels as soon as possible through accelerating the green transition towards climate neutrality in the EU by 2050 at the latest. Now is the time to be bold and to move ahead with determination with the green transition. Any delay or hesitation will only prolong our energy dependence.
We therefore welcome the ambitions in the European Commission’s “RepowerEU” communication that sets a course towards independence from Russian energy imports. As leaders agreed in Versailles this should happen as soon as possible. In this respect it will in particular be necessary to speed and scale up renewable energy, renewable gas and energy efficiency.
The Fit for 55 package is one of the key tools for this effort. According to the Commission, the Fit for 55 legislation will, when fully implemented, reduce the EU’s total gas consumption by 30 % by 2030 and contribute to full energy independence from Russian fossil fuels as soon as possible. Negotiations on the package should therefore be accelerated and ambitions ramped up.
We need a swift transition to renewable energy, as an affordable and secure energy source that will contribute to shield consumers from price hikes as a consequence of import dependency. Additionally, more efficient use of energy will strengthen the resilience of our energy systems and lower our import dependency on fossil fuels. An ambitious Fit for 55 package is not only necessary for the climate – it is also an efficient response to Russian aggression as well as the affordable and job creating path out of the crisis.
Given the extraordinary situation, we must also explore and pursue options to diversify our energy supply. This can and must be done within the framework of the EU’s ambitious climate targets and with respect of the do no harm principle. It should also be achieved in a way that avoids lock-in effects of fossil fuel production and use and instead keep the EU and Member States on a transitionary path towards climate neutrality by 2050.
An open and interconnected market-driven EU internal energy market is important to minimize price shocks across the EU in case of disruptions of supply. A strong ETS is the corner stone of the FF55 package, providing us with an effective tool to ensure a cost effective transition combined with ambitious sectoral measures and standards.
We therefore call on all Member States to unite in the ongoing FF55 negotiations, to ensure an ambitious and swift implementation of the Fit for 55 package.
This is key to making the EU fit for energy independence of Russian fossil fuels and the only way we can address the climate crisis, respond to aggressive Russian behavior, and ensure a clean, reliable and cheap independent EU energy supply for the future.
Participants:

Leonore Gewessler, Federal Minister for Climate Action, Environment, Energy, Mobility, Innovation and Technology of Austria

Robert Habeck, Federal Minister for Economic Affairs and Climate Action and Steffi Lemke Federal Minister for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection of Germany

Dan Jørgensen, Minister for Climate, Energy and Utilities of Denmark

Teresa Ribera Rodríguez, Third Vice-President of the Government and Minister for the Ecological Transition and Demographic Challenge of Spain

Emma Kari, Minister of the Environment and Climate Change of Finland

Eamon Ryan T.D., Minister for the Environment, Climate and Communications of Ireland

Carole Dieschbourg, Minister for the Environment, Climate and Sustainable Development of Luxembourg

Artūrs Toms Plešs, Minister of Environmental Protection and Regional Development of Latvia

Rob Jetten, Minister for Climate and Energy Policy of the Netherlands

Annika Strandhäll, Minister for Climate and the Environment of Sweden

Andrej Vizjak, Minister of the Environment and Spatial Planning of Slovenia

Compliments of European Commission.
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Following years of preparation, the end of 2021 marked a major milestone in the transition away from LIBOR.
The FSB welcomes the smooth transition to robust alternative rates across global markets, primarily overnight risk-free or nearly risk-free rates (RFRs). The absence of any significant market disruptions is a testament to the magnitude of market participants’ efforts and the level of attention from the regulators and industry bodies to support the transition to RFRs.
The statement notes that all GBP, EUR, CHF, and JPY LIBOR panels, as well as the 1-week and 2-month USD LIBOR settings, ceased as of end-2021. While key panel-based USD LIBOR settings will continue until end-June 2023, this is intended to support the run-off of a substantial portion of legacy contracts.
Given the significant use of USD LIBOR globally, the FSB emphasises that firms must have plans in place to ensure their preparedness for the cessation of the USD LIBOR panel.
More generally, to ensure financial stability, it is important that market participants transition from LIBOR and other IBORs that are set to be discontinued.
The FSB’s Official Sector Steering Group (OSSG) will continue to serve as a forum in 2022 and 2023 for cooperation amongst authorities that have leading roles in interest rate benchmark reforms and transition preparedness.
Compliments of the Financial Stability Board.
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Keynote speech by Luis de Guindos, Vice-President of the ECB, at the Joint conference of the ECB and the European Commission on European financial integration | Frankfurt am Main, 6 April 2022 |

Introduction
It is my great pleasure to open today’s conference. I would like to use this opportunity to reflect on some important developments in financial integration that have taken place over the last two years, and assess them from the perspective of an EU financial system for the future – the title of today’s conference.
I will begin by touching on the pandemic’s implications for the financial sector in Europe. I will discuss how the progress achieved on financial integration since the start of Economic and Monetary Union (EMU) has helped to increase the resilience of the EU financial sector, before arguing that a further deepening of EMU can help tackle the current and future challenges that come our way. I will then conclude by reflecting on the economic fallout from the Russian invasion of Ukraine, and the implications that could have for financial stability and financial integration.
Financial integration now and in the past
Let me first discuss the implications of the pandemic crisis. When the pandemic began, we saw a notable decrease in euro area financial integration. But thanks to fast and decisive policy action at the monetary, fiscal and prudential levels, this deterioration not only stopped, it actually reversed relatively quickly. This is in contrast to what has typically occurred in previous crises.
As the pandemic unfolded, public health measures, mobility restrictions and production constraints limited household consumption levels. This meant that key private channels of risk-sharing across euro area countries were restricted. So public risk-sharing via governments became crucial for macroeconomic stabilisation.
Major fiscal initiatives at EU level were key to ensuring that risks were shared among Member States, compensating for the fact that private financial channels were hampered. Sizeable fiscal risk-sharing mechanisms were established with the Next Generation EU recovery package. The associated investments and reforms are expected to improve risk-sharing at the public sector level over the coming years. Joint support from fiscal and monetary policy has been indispensable in avoiding a much deeper economic downturn. For example, credit support measures, such as loan guarantees, proved critical in shoring up the financing of firms and households during the pandemic.
At the same time, we should not overlook the decisive role played by the EU financial system in weathering the crisis, notably by being able to meet financing needs during the pandemic. The fact that the system could withstand a shock the size of the pandemic is testament to the effective implementation of ambitious financial reforms in the aftermath of the global financial crisis.
But it’s important to remember that it took a lot of hard work to achieve this resilience. EU financial integration has come a long way since the launch of EMU in 1992. Soon after the introduction of the euro, policymakers realised that the single currency alone was not enough to spur the further development and integration of the EU financial system. Support was needed from policies that were conducive to the free flow of financial services in the euro area, in addition to adequate legal, regulatory and supervisory frameworks, along with greater institutional integration. There were several milestones on the road towards European financial integration, including the European Commission’s Financial Services Action plan for the harmonisation of the EU financial services markets starting in 1999, the Lamfalussy architecture to improve regulatory processes introduced in 2001, the launch of the banking union in 2012 and the two subsequent action plans for the capital markets union (CMU) in 2015 and 2020.
Despite these achievements, there is still more work to be done. We need to push forwards and further deepen EMU. And we need to do so while keeping in mind the new challenges that we face, such as the transition to a sustainable economy.
The growth of green finance can facilitate – and, at the same time, benefit from – the integration of EU capital markets across borders. Deeper and more efficient capital markets, with equity playing a greater role, can be instrumental in encouraging the more rapid development and adoption of new technologies, including green technologies, and in facilitating the provision of finance across the EU. Indeed, research finds that carbon-intensive industries tend to reduce emissions faster in economies with deeper stock markets.[1]
Last November the European Commission published the CMU package containing legislative proposals and key commitments in the CMU action plan. This was an important step, but we need to be more ambitious in three main areas if we are to achieve a deeply integrated CMU.
First, we need to see a harmonisation of insolvency rules and withholding tax regimes. That will help create a more integrated financial sector that can easily operate across borders, including in green market segments. The ECB is therefore looking forward to the upcoming Commission proposals on this matter.
Second, reducing the debt-equity bias and harmonising venture capital frameworks across Member States are important steps to support equity and risk capital markets and thereby provide smoother financing for innovation.
Third, we need to make progress on the EU’s sustainable finance agenda. There should be no more delays as we strive for a reliable and transparent regulatory framework. Sustainability disclosures and reliable standards for green financial products are key to reaping the benefits of a green CMU. This is why we need the Corporate Sustainability Reporting Directive to be implemented swiftly, alongside the broad adoption of a sound and usable European green bond standard.
While CMU is a crucial pillar for EMU, we also need to see progress on other fronts. The banking union remains incomplete. But completing it is essential if we are to enhance the financial sector’s resilience and further address some of its structural challenges. These include low bank profitability, growing competition from fintech companies and the fragmentation of debt and equity markets along national lines.
Completing the banking union requires efforts in two areas: improving the crisis management framework and making progress towards a European deposit insurance scheme (EDIS). We very much welcome the balanced workplan proposed by the Eurogroup President, which should provide a good basis for reaching political agreement on these matters as swiftly as possible.
Another element to ensuring that banks further increase their resiliency is the timely and full implementation of the remaining elements of the Basel III agreement. The ECB welcomes the Commission’s proposals in this respect, which will lead to a stronger prudential framework and help tackle emerging risks, such as environmental risks.
Pushing ahead with these important initiatives will further strengthen Europe’s resilience to future crises, allowing us to respond quickly. After all, the terrible events of the last six weeks have reminded us how quickly the economic environment can change.
Financial stability and integration in view of the Russia-Ukraine war
The Russian invasion of Ukraine marks a watershed moment for Europe. This is, first and foremost, a human tragedy. But the economic fallout has also re-introduced substantial elements of uncertainty just as the euro area economy is emerging from the pandemic.
In the first weeks after the invasion, we saw visible implications for financial integration in the euro area, driven primarily by bond markets. Announcements of sanctions against Russia led – initially, at least – to a slight divergence of sovereign and corporate bond yields across euro area countries. This caused euro area indicators of financial integration to recede – as captured, for instance, by a measure of the convergence of asset prices across the euro area. But the good news is that this indicator has partly recovered since then. And, importantly, these movements were nowhere close to what we saw during the global financial crisis and at the beginning of pandemic.
For the euro area, the financial stability impact of the war has so far been relatively contained. Markets have generally been functioning well. Contrary to what happened in March 2020, there has been no dash for cash. While both banks and non-banks have been affected – especially the few that have large direct exposures to Russia and Ukraine – the economic fallout has not had a sizeable impact on the EU banking or financial systems as a whole. Euro area banks’ initial stock price reaction suggested a much stronger impact than was implied by their direct exposures, which stood at less than 1% of banks’ assets. This points to much greater concerns about growth and inflation, and the impact the conflict is having in amplifying them.
The invasion of Ukraine also demonstrated how vulnerable Europe is due to its high dependency on fossil fuel imports from Russia. Speeding up the green transition is a key priority from this perspective too – not only to address the urgent environmental and climate challenges we face, but also to help increase our energy security and protect the EU economy from energy price spikes.
Recent events have reaffirmed the importance of financial integration. First, financial integration together with adequate regulatory and supervisory frameworks improves the resilience of the EU economy and its financial sector. In particular, the sound capital and liquidity buffers that have helped European banks absorb shocks owe a lot to the Single Rulebook and European banking supervision – key elements of our banking union.
Second, financial integration has improved our ability to take credible actions and has given those actions greater weight. Close collaboration in various aspects of EU financial decision-making allowed EU financial sanctions to be adopted swiftly and implemented consistently. And the ECB, for its part, is taking an active role in implementing these sanctions in its areas of competence.
Conclusion
Let me conclude.
European integration has already come a long way since the start of EMU. But we are not at the finish line just yet. Our journey is an ambitious one, and we must quicken our pace.
During this troubled time for Europe, I am reminded of the words of Konrad Adenauer, the first Chancellor of West Germany. He once said: “European unity was a dream of a few people. It became a hope for many. Today it is a necessity for all of us.”
These words were spoken almost 70 years ago, just as the wheels of European integration were turning faster. Let us keep those wheels moving. Our current challenges call for decisive joint action from all of us as we work towards a strengthened European financial system and a solid EMU. I have no doubt that we will reach the finish line.
Thank you for your attention.
Compliments of the European Central Bank.

1. De Haas, R. and Popov, A. (2019), “Finance and carbon emissions”, Working Paper Series, No 2318, ECB, September.

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Variation in the Inflation Experiences of Households | Governor Lael Brainard at the Spring 2022 Institute Research Conference, Opportunity and Inclusive Growth Institute, Federal Reserve Bank of Minneapolis, Minneapolis, Minnesota (via webcast) |

It is a pleasure to join you to discuss differences in how households at different income levels experience inflation.1 I look forward to hearing from the panelists, who are doing important and interesting research on this topic.
By law, the Federal Reserve is assigned the responsibility to pursue price stability and maximum employment. The Federal Open Market Committee (the Committee) has long recognized the connection between stable, low inflation and maximum employment. Forty years ago, Paul Volcker noted that the dual mandate isn’t an either-or proposition and that runaway inflation “would be the greatest threat to the continuing growth of the economy… and ultimately, to employment.”2
Maximum employment and stable, low inflation benefit all Americans, but are particularly important for low- and moderate-income families. The combination of good job opportunities and stable, low inflation provides purchasing power to fill up gas tanks and grocery carts and pay housing and medical costs, leaving room to build emergency cushions and invest in education; retirement; and, for some, small businesses. Indeed, the Employment Act of 1946 called on the federal government to promote “maximum employment, production, and purchasing power.”3
While national data do not directly disaggregate the differential effects of inflation by household income groups, a variety of evidence suggests that lower-income households disproportionately feel the burden of high inflation. Lower-income families expend a greater share of their income on necessities; have smaller financial cushions; and may have less ability to switch to lower-priced alternatives. Arthur Burns noted in the late 1960s that “there can be little doubt that poor people…are the chief sufferers of inflation.”4
Today, inflation is very high, particularly for food and gasoline. All Americans are confronting higher prices, but the burden is particularly great for households with more limited resources. That is why getting inflation down is our most important task, while sustaining a recovery that includes everyone. This is vital to sustaining the purchasing power of American families.
Whose Cost of Living?
In assessing inflation faced by American consumers, economists and policymakers generally rely on the change in the consumer price index (CPI) or the change in the price index for personal consumption expenditures (PCE).5 Since January 2012, the Committee’s price-stability goal has been specified as a longer-run goal of 2 percent in terms of annual PCE inflation.6 Both CPI and PCE inflation metrics are assembled from a collection of underlying elementary price indexes for narrow subsets of goods and services.7 The price changes each month for the goods and services in these subsets are combined into measures of overall inflation by calculating a weighted average of all these subindexes, where the weights are based on average aggregate consumer expenditures in each category.
Using a national average of consumer expenditures to weight the categories has intuitive appeal. This measure is particularly useful, for example, in adjusting measures of overall expenditure for changes in prices to determine how much real growth has occurred between two periods. However, using a national average of expenditures to weight the categories has limitations when it comes to representing the true cost of living experienced by different types of households.
U.S. Households Have Different Inflation Experiences
Each household in the United States has a particular consumption bundle whose prices and quantities combine to make up that household’s cost of living. If we could start with each individual household’s cost of living and aggregate across households by giving equal weight to each household, it would create an economy-wide cost-of-living index. The change in such a cost-of-living index would represent the average inflation experienced by U.S. households. Instead, because the CPI and PCE indexes weight every dollar of expenditure equally, these indexes implicitly weight each household’s cost of living proportionally to their total expenditure.8 Since lower-income households represent a relatively smaller share of overall expenditure, the inflation associated with their consumption baskets is underrepresented in the official consumer price indexes.
It would be useful to have data about consumer inflation broken out by demographic groups, similar to labor market and personal-income data, in order to assess the differential effect of inflation across different groups of households.9 U.S. statistical agencies do not collect the information needed to accurately assess inflation at a household level, and it would require a large change in the way these agencies go about their work to do so. Nonetheless, recent research has begun to assess variation in the ways different households experience inflation.
Households at different income levels could experience differential inflation effects for several reasons: Consumption shares could differ systematically for low- and high-income households; the goods and services within each consumption category could differ; the ability to substitute for lower-priced alternatives of the same item could differ; and prices paid for the same good could differ systematically due to differences in access. I will briefly touch on these four reasons.
First, low- and moderate-income households could experience inflation that diverges from the average because their consumption baskets differ systematically from the average. 10 Lower-income households spend 77 percent of their income on necessities—more than double the 31 percent of income spent by higher-income households on these categories.11
Several studies have found that the consumption baskets of lower-income households have experienced higher-than-average inflation rates over time. Research from the Bureau of Labor Statistics (BLS) has examined the effect of different consumption baskets by using the same elementary price indexes as used in the official CPI but assigning the weights of these components to reflect the consumption bundles of different types of households. A 2021 working paper by BLS staff based on data from 2003 to 2018 found that a price index reflecting the consumption basket for households in the lowest-income quartile grew faster than the overall CPI, while a price index reflecting the consumption basket for households in the highest-income quartile grew more slowly than the overall CPI.12 A 2015 BLS study found a similar result using data from 1982 to 2014.13 Of course, the recent sharp increases in inflation may have affected the consumption bundles of lower-income households relative to the average differently than in previous cycles.
While these studies allow for differences in the weighting of price indexes across different income groups, they rely on the same elementary price indexes for subcategories of goods and services. As a result, they may miss additional sources of variation in the inflation rates experienced by households at different income levels.
This consideration brings us to the second point: Households with different levels of income may purchase significantly different items even within the same elementary index categories for goods and services. To take an extreme example, caviar and canned tuna are both in the same elementary index. The demand and supply dynamics for those products are likely quite different, meaning that their relative price dynamics are poorly described by a single index.
Third, households at different income levels may have differing abilities to substitute for lower-priced alternatives within an elementary category. Consider a price increase for a breakfast cereal that increases the prices of both the brand-name cereal and the corresponding lower-priced store-brand cereal but maintains a differential between them. A household that had been purchasing brand-name cereal could save money by purchasing store-brand cereal instead, perhaps even eliminating any effect of the price increase on their actual spending while purchasing the same quantity of cereal in that narrow category. However, a household that was already purchasing the store brand would have to either absorb the increase in cost or consume less within that category.
Finally, beyond the variation in inflation that comes from households buying different goods, research also shows that differences in inflation can result from households paying different prices for identical goods. Using transaction-level data, researchers found that almost two-thirds of the variation in inflation across households comes from differences in prices paid for identical goods, with only about one-third coming from differences in the mix of goods within broad categories.14 As a result of these differences, households with lower incomes, more household members, or older household heads experienced higher inflation on average. Variations in the prices paid for identical goods could reflect differences in the ability of some households to stock up when prices are discounted or to buy in bulk and save—options only available to households with the means to buy in larger quantities, adequate capacity to store larger quantities, or the flexibility to delay purchases if there is an opportunity to save in the future.
In addition, evidence suggests that inflation could be lower for items purchased online rather than from brick-and-mortar stores, suggesting that households who do not have full access to online shopping options could face a higher cost of living. One study of online transactions made between 2014 and 2017 found that online inflation averaged more than 1 percentage point per year lower than the equivalent CPI measure of the relevant product categories.15
We are only beginning to understand the ways in which inflation experiences vary from household to household, how this variation correlates with income and demographic information, and how these divergent inflation experiences change over time.16 This developing area of research will benefit from conferences like this one that help expand the frontier of our knowledge about the heterogeneity of experienced inflation.
Implications for the Outlook and Policy
High inflation places a burden on working families who are concerned about how far their paychecks will stretch as well as seniors living on fixed incomes. So now let me turn briefly to what we are seeing on inflation and the outlook for jobs and growth.
Headline PCE inflation for February came in at 6.4 percent on a 12-month basis. Food and energy account for an outsized one-fourth share of this high level of inflation and also constitute an outsized share of expenditure for lower-income Americans, who spend 26 percent of their income on food at home and transportation, compared with 9 percent for high-income Americans.17
Core inflation is also elevated, and inflationary pressures have been broadening out. Housing contributed about one-tenth of total PCE inflation in February and is the single greatest category of expenditures by far for lower-income Americans, who spend 45 percent of their income on housing, compared to 18 percent for high-income Americans.18 Durable goods inflation, particularly in autos, accounted for slightly more than one-fifth of total PCE inflation in February, representing a much greater contribution to inflation than was the case pre-pandemic. High durable goods inflation reflects pandemic-related supply constraints as well as persistently elevated demand associated with the pandemic. I will be carefully monitoring the extent to which demand rotates back to services and away from durable goods, where it has remained consistently above pre-pandemic levels, and the extent to which the services sector is able to absorb higher demand without generating undue inflationary pressure.
Russia’s invasion of Ukraine is a human tragedy and a seismic geopolitical event. The global commodity supply shock associated with Russia’s actions skews inflation risks to the upside and is expected to exacerbate high prices for gasoline and food as well as supply chain bottlenecks in goods sectors. The recent COVID lockdowns in China are also likely to extend bottlenecks.
These geopolitical events also pose downside risks to growth. That said, the U.S. economy entered this period of uncertainty with considerable momentum in demand and a strong labor market. As of the March labor report, payroll employment has increased at a pace of 600,000 jobs per month over the past six months, and the unemployment rate has fallen by a percentage point over that period and is now close to its pre-pandemic level. In contrast, until recently, the recovery in labor force participation was lagging far behind. So it is particularly noteworthy to see that the pandemic constraints on labor supply are diminishing for the prime-age workforce: The prime-age participation rate jumped 0.7 percentage points for women in March, following a similar-sized jump for men in February. An increase in labor supply associated with diminishing pandemic constraints combined with a moderation in demand associated with tightening financial conditions, slowing foreign growth, and a large decrease in fiscal support could be expected to reduce imbalances later in the year.
Against that backdrop, I will turn to policy. It is of paramount importance to get inflation down. Accordingly, the Committee will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting. Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19. The reduction in the balance sheet will contribute to monetary policy tightening over and above the expected increases in the policy rate reflected in market pricing and the Committee’s Summary of Economic Projections. I expect the combined effect of rate increases and balance sheet reduction to bring the stance of policy to a more neutral position later this year, with the full extent of additional tightening over time dependent on how the outlook for inflation and employment evolves.
Our communications have resulted in broad market expectations for an expeditious increase in the policy rate toward a neutral level and a more rapid reduction in the balance sheet compared with 2017–19. Consistent with these expectations, we have already seen significant tightening in market financing conditions at longer maturities, which tend to be most relevant for household and business decisionmaking. For instance, 30-year mortgage rates have increased more than 100 basis points in just a few months and are now at levels last seen in late 2018.
Looking forward, at every meeting, we will have the opportunity to calibrate the appropriate pace of firming through the policy rate to reflect what the incoming data tell us about the outlook and the balance of risks. For today, every indicator of longer-term inflation expectations lies within the range of historical values consistent with our 2 percent target. On the other side, I am attentive to signals from the yield curve at different horizons and from other data that might suggest increased downside risks to activity. Currently, inflation is much too high and is subject to upside risks. The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted. We are committed to bringing inflation back down to its 2 percent target, recognizing that stable low inflation is vital to maintaining a strong economy and a labor market that works for everyone.
Compliments of the U.S. Federal Reserve.

1. I am grateful to Kurt Lewis of the Federal Reserve Board for his assistance in preparing this text. These views are my own and do not necessarily reflect those of the Federal Reserve Board or the Federal Open Market Committee. Return to text

2. Paul Volcker (1979), interview on “The MacNeil/Lehrer Report” (PDF), PBS, October 10, p. 10. Return to text

3. See the Declaration of Policy on page 1 of the Employment Act of 1946, available at https://fraser.stlouisfed.org/files/docs/historical/congressional/employment-act-1946.pdf. Return to text

4. Quoted in John Palmer (1973), Inflation, Unemployment, and Poverty (Lexington, Mass.: Lexington Books), as referenced in Alan Blinder and Howard Esaki (1978), “Macroeconomic Activity and Income Distribution in the Postwar United States,” Review of Economics and Statistics, vol. 60 (November), pp. 604–9. Return to text

5. CPI and PCE inflation generally move together but vary in important ways, including variations generated by differences in the scope of the purchases considered in the households’ baskets, differences in the weights assigned to different categories of spending, and different formulas used to aggregate the underlying weighted price changes. For a recent comparison of CPI and PCE measures, see Noah Johnson (2017), “A Comparison of PCE and CPI: Methodological Differences in U.S. Inflation Calculation and their Implications” (PDF), BLS Statistical Survey Paper (Washington: Bureau of Labor Statistics, November). Return to text

6. The specific price-stability target of an inflation rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, was announced as part of the Statement on Longer-Run Goals and Monetary Policy Strategy following the January 2012 Federal Open Market Committee (FOMC) meeting. For more information, see the current version of that statement at https://www.federalreserve.gov/monetarypolicy/files/FOMC_LongerRunGoals.pdf as well as Chair Bernanke’s discussion of the decision at the January 24, 2012, press conference: https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20120125.pdf. For additional information regarding the FOMC’s preference for using a PCE-based measure of inflation, see the discussion of the change from CPI to PCE inflation projections in the February 2000 Monetary Policy Report at https://www.federalreserve.gov/boarddocs/hh/2000/february/fullreport.pdf#page=7. Return to text

7. According to the CPI section of the Handbook of Methods, the CPI survey collects about 94,000 prices per month to find prices in 243 basic item categories in 32 geographic areas, facilitating the creation of basic indexes for each of the resulting 7,776 item-area combinations that compose the CPI. See Bureau of Labor Statistics (2020), “Consumer Price Index” Handbook of Methods (Washington: BLS, November). Return to text

8. These two approaches are referred to as the democratic and plutocratic indexes, respectively. For more information on the literature of cost-of-living measurement and plutocratic and democratic indexes, see Robert A. Pollak (1998), “The Consumer Price Index: A Research Agenda and Three Proposals,” Journal of Economic Perspectives, vol. 12 (1), pp. 69–78. Return to text

9. See Austan Goolsbee (2021), “The Missing Data in the Inflation Debate,” New York Times, December 30, https://www.nytimes.com/2021/12/30/opinion/inflation-economy-biden-inequality.html. Return to text

10. See Pew Charitable Trusts (2016), Household Expenditures and Income, Issue Brief (Washington: Pew, March). Return to text

11. The values for the share of income spent in each category were constructed using microdata from the 2020 Consumer Expenditure Interview Survey (CEX). For full-income reporters with strictly positive values for total expenditure and income after tax, the income share of expenditure in a given category is the ratio of expenditure in a given category to income after tax. The numbers reported are the sum of the median income share from each of the four categories, where each is defined as the weighted median of these ratios for households in the bottom and top quintiles of the income distribution. Consumption categories are defined as in the CEX. Return to text

12. The study used data from the Consumer Expenditure Survey to construct a consumption basket for households in the lowest quartile of income as well as in the highest quartile of income. The authors calculated a Laspeyres index for the consumption basket of households in the lowest and highest income quartiles. From December 2003 to December 2018, the annualized percent change in the index for the lowest income quartile was 2.25 percent, and the annualized percent change in the index for the highest income quartile was 1.97 percent; the CPI-U had an annualized percentage change of 2.07 percent over that period. See Josh Klick and Anya Stockburger (2021), “Experimental CPI for Lower and Higher Income Households” (PDF), BLS Working Paper 537 (Washington: Bureau of Labor Statistics, March). Return to text

13. Three different baskets of “basic necessities” were considered in this study. The base experimental index included food, shelter, and clothing, and the additional two baskets included the components of the base index and added energy, and then both energy and medical care, respectively. During the period examined, the rate of overall consumer inflation was 2.78 percent, as measured by the regular CPI-U for All Items. In comparison, the base experimental index rose at an average annual rate of 2.91 percent from December 1982 to December 2014. The base-plus-energy experimental index increased at an average annual rate of 2.75 percent over the same period. The base-plus-energy-and-medical-care experimental index rose at an average annual rate of 2.99 percent during the same timeframe. See Jonathan Church (2015), “The Cost of ‘Basic Necessities’ Has Risen Slightly More than Inflation over the Last 30 Years,” Beyond the Numbers: Prices & Spending, vol. 4 (June), no. 10. Return to text

14. See Greg Kaplan and Sam Schulhofer-Wohl (2017), “Inflation at the Household Level,” Journal of Monetary Economics, vol. 91 (November), pp. 19–38. For a sample of 500 million transactions by about 50,000 U.S. households from 2004 to 2013, the authors found that over the nine years from the third quarter of 2004 through the third quarter of 2013, average inflation cumulates to 33 percent for households with incomes below $20,000 but to just 25 percent for households with incomes above $100,000.
This finding does not hold for housing, where a recent study found that housing inflation tends to be relatively similar across income quintiles, even though the share of income spent on housing varies considerably by income group. See table 2 and the related discussion in Daryl Larsen and Raven Malloy (2021), “Differences in Rent Growth by Income 1985-2019 and Implications for Real Income Inequality,” FEDS Notes (Washington: Board of Governors of the Federal Reserve System, November 5). Return to text

15. The study used a matched set of entry-level item categories to create a digital price index (DPI) to compare with the equivalent CPI measure and found that overall DPI inflation is more than 1 percentage point per year lower than CPI inflation in those categories. Broken out by major groups, inflation was lower in the DPI than in the equivalent CPI in every category other than medicine and medical supplies. See Austan Goolsbee and Peter Klenow (2018), “Internet Rising, Prices Falling: Measuring Inflation in a World of E-Commerce,” AEA Papers and Proceedings, vol. 108 (May), pp. 488–92. Return to text

16. For example, a recent study also suggests that the differential rates of inflation between low- and high-income households varies over the cycle: The gap between the inflation associated with goods purchased by lower-income households relative to higher-income households rises during recessions and narrows during recoveries. See David Argente and Munseob Lee (2021), “Cost of Living Inequality During the Great Recession,” Journal of the European Economic Association, vol. 19 (April), pp. 913–52. Another recent working paper documents that prices rise more for products purchased relatively more by low-income households (necessities) during recessions and that the aggregate share of spending devoted to necessities is countercyclical. See also Jacob Orchard (2022), “Cyclical Demand Shifts and Cost of Living Inequality,” SSRN Working Paper (Rochester, NY: SSRN, February 12). Return to text

17. These statistics are based on the median income share in each category, defined as the weighted median of these ratios for households in the bottom and top quintiles of the income distribution; see footnote 12 for additional detail. Return to text

18. These statistics are based on the median income share in each category, defined as the weighted median of these ratios for households in the bottom and top quintiles of the income distribution; see footnote 12 for additional detail. Return to text

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