Regional Disparities in Inflation Persistence: Unpacking the Dynamics of Price Growth in Portugal

This paper investigates the degree of inflation persistence across regions in Portugal by analyzing the Consumer Price Index (CPI) growth rates for NUTS II regions. The study employs the Augmented Dickey-Fuller (ADF) test to determine whether the CPI data for Portugal is stationary or non-stationary. The results of the ADF test reveal that the IPC data for Portugal is non-stationary, indicating that inflation exhibits persistence in the long run. The study further assesses the persistence of inflation by estimating an autoregressive integrated moving average (ARIMA) model for each region. The Ljung-Box test is used to test for autocorrelation in the time series data, and the Hurst exponent is calculated to evaluate the presence of long-term memory in the time series data. The study finds that there is significant autocorrelation in the time series data for all regions, supporting the presence of persistence in inflation at the regional level in Portugal. The Hurst exponent also shows that the time series data for each region exhibits a high degree of persistence in inflation. Finally, the study applies the ARIMA model to each CPI division's data and uses the Ljung-Box test to test for autocorrelation in the time series data. The results show that some CPI divisions exhibited higher levels of persistence compared to others. For example, the "Housing, water, electricity, gas and other fuels" division exhibited high persistence, while the "Communication" division exhibited low persistence. This study contributes to the existing literature by exploring regional inflation persistence in Portugal and its implications for policymaking. The results provide insights into the inflation persistence patterns across regional levels in Portugal, by emphasizing the need to consider regional differences in inflation dynamics when formulating effective policy interventions. Understanding the persistence of inflation is crucial for policymakers to ensure price stability and sustainable economic growth.