In general, sticky price revision processes reduce the odds that the imbalances created by economic shocks can be rectified by adjustments in prices. Conversely, they make the burden of adjustment to a shock fall disproportionately on changes in output, incomes and employment. Also, stickier prices tend – all other things being equal – to increase the persistence of inflation.
This is because the impact of a shock that today modifies firms’ real cost conditions tends to be spread out over an extended future, as staggered price adjustments catch up only slowly with the changed underlying circumstances. Despite sluggish price-setting mechanisms, however, inflation persistence in the euro area is low by international standards.