I should like to stress first that, overall, inflation differences among euro area countries have fallen and are currently relatively limited by historical standards. The magnitude of current inflation and output differentials is similar to that observed across regions or states within the United States. These differentials can be considered normal to the extent that they reflect catching-up phenomena or country-specific shocks.
However, inflation differentials tend to be rather persistent in the euro area, and they reflect in part persistent differences in unit labour cost developments. In addition, the variation of output growth across some euro area countries can largely be attributed to differences in potential output growth rather than in business cycles.