Abstract
Using micro data on import values and quantities by product and countries of origin, we quantify
the effect of imports of consumption-goods from low-wage countries (LWCs) on inflation in
France from 1994 to 2014. Imports of varieties produced in LWCs affect the cost-of-living
price index through pure-price and taste-shift variations (which, conditional on prices, drive
expenditure shares). The pure-price effect includes both the contribution of imported inflation
(given the share of imports in consumption) and the effect of imports of intermediate goods from
LWCs on domestic prices. The taste shock effect cannot be directly observed but is recovered
from actual expenditure shares and relative prices. We derive an expression of inflation that
allows us to disentangle the impact of imports of consumption goods from LWCs on cost-ofliving versus CPI inflation – the latter abstracting for composition effects. Overall, we estimate
that imports from LWCs lowered CPI inflation by 0.02 pp per year on average, and had a much
larger effect on cost-of-living inflation (between 0.13 to 0.20 pp per year depending on how we
measure unit values).