It seems likely that cross-country divergences will increasingly reflect exposures that countries have to various sectors. Thinking about heterogeneity at a sectoral level might therefore be more insightful for the euro area than focussing solely on cross-country comparisons. Consider trends in inflation. The Eurosystem has defined price stability as a positive inflation rate below 2% over the medium term.
The definition recognises the fact that at times inflation may temporarily move outside that target range. That is currently occurring as a result of higher oil prices which are a kind of sectoral shock. The weak exchange rate is also contributing to higher prices. The most recent HICP inflation rate shows that euro area consumer prices increased by 2.4% in the year to July.