Price competitiveness

Background

The indicators of a country’s price competitiveness capture exchange rate movements while taking into account the change in relative prices or costs. Similarly to the approach used for real effective exchange rates, competitiveness is determined against a group of countries. Here, too, an increase in these indicators denotes a decrease in the price competitiveness of the domestic economy in question.

The indicator of a given euro area country’s price competitiveness takes account of developments against the other countries in the single currency area as well as against non-euro area countries. By contrast, the real effective exchange rates of the euro are calculated against non-euro area countries only.

Harmonised indicators of price competitiveness

The harmonised indicators serve as uniform and comparable measures of the price competitiveness of euro area countries. They are calculated as weighted averages of the relative change in the bilateral exchange rates of the euro against the currencies of key trading partners while taking into account the different price or cost developments in the countries under review.

The ECB calculates the harmonised indicators of price competitiveness for all euro area countries using the same method and the same data sources as for the effective euro exchange rates. The weights used are based on the trade in manufactured goods and services and also include third-market effects. For questions about the calculation method, please refer to the Eurosystem methodology for effective exchange rates (ECB website, Statistical Data Warehouse, Notes to Table 8.1; more details in Occasional Paper Series, No 134, June 2012).

Indicators of the German economy’s price competitiveness

Supplementary to the harmonised indicators of price competitiveness, a number of Eurosystem national central banks publish other indicators of competitiveness. These may be calculated using varying methods and, in some cases, on the basis of different price or cost indicators, so as to factor in the specific circumstances of the country concerned.

The indicators of the German economy’s price competitiveness published by the Deutsche Bundesbank follow the same methodology as that used by the Eurosystem to calculate effective exchange rates (for more information, see the ECB website, Statistical Data Warehouse, Notes to Table 8.1; more details in Occasional Paper Series, No 134, June 2012).