This paper examines the dynamics of European inflation, focusing on the fit of the New Phillips Curve (NPC) for the Euro area from 1970 to 1998. It compares these dynamics with those observed in the U.S. and analyzes the factors underlying inflation inertia, particularly the cyclical behavior of marginal costs, including labor productivity and real wages. Key findings include: (a) the NPC fits Euro area data well, possibly better than U.S. data; (b) the degree of price stickiness implied by estimates is substantial but consistent with survey evidence and U.S. estimates; (c) Euro area inflation has a stronger forward-looking component than U.S. inflation; (d) labor market frictions, as reflected in wage markups, played a key role in shaping marginal costs and inflation in Europe. The paper proposes and estimates a Phillips curve for the Euro area based on staggered nominal price setting by monopolistically competitive firms. It shows that real marginal cost, measured as real unit labor costs, directly accounts for the influence of productivity and wage pressures on inflation. The analysis reveals that productivity, wages, and inflation move together as the new Phillips curve theory suggests. The paper also finds that real marginal cost in the Euro area is not well approximated by detrended output, suggesting that the empirical failure of new Phillips curve specifications based on detrended output may be due to the sluggishness of real marginal cost relative to detrended output. This sluggishness helps the model account for the high persistence in inflation. The paper further decomposes the cyclical movement in real marginal cost, finding that wage rigidity was a significant factor in sluggish cyclical movement in marginal cost for both the Euro area and the U.S. In the Euro area, steady real wage increases from the early 1970s through the early 1980s placed consistent upward pressure on real marginal cost, contributing to double-digit inflation and general stagnation. The paper compares the Euro area with the U.S., showing that the estimated baseline model tracks actual Euro inflation well. It also presents a decomposition of real marginal cost to understand the forces driving this variable, finding that labor market frictions likely played an important role in both regions. The paper concludes that structural modeling of inflation is desirable, as it is for all other aspects of a macroeconomic framework.This paper examines the dynamics of European inflation, focusing on the fit of the New Phillips Curve (NPC) for the Euro area from 1970 to 1998. It compares these dynamics with those observed in the U.S. and analyzes the factors underlying inflation inertia, particularly the cyclical behavior of marginal costs, including labor productivity and real wages. Key findings include: (a) the NPC fits Euro area data well, possibly better than U.S. data; (b) the degree of price stickiness implied by estimates is substantial but consistent with survey evidence and U.S. estimates; (c) Euro area inflation has a stronger forward-looking component than U.S. inflation; (d) labor market frictions, as reflected in wage markups, played a key role in shaping marginal costs and inflation in Europe. The paper proposes and estimates a Phillips curve for the Euro area based on staggered nominal price setting by monopolistically competitive firms. It shows that real marginal cost, measured as real unit labor costs, directly accounts for the influence of productivity and wage pressures on inflation. The analysis reveals that productivity, wages, and inflation move together as the new Phillips curve theory suggests. The paper also finds that real marginal cost in the Euro area is not well approximated by detrended output, suggesting that the empirical failure of new Phillips curve specifications based on detrended output may be due to the sluggishness of real marginal cost relative to detrended output. This sluggishness helps the model account for the high persistence in inflation. The paper further decomposes the cyclical movement in real marginal cost, finding that wage rigidity was a significant factor in sluggish cyclical movement in marginal cost for both the Euro area and the U.S. In the Euro area, steady real wage increases from the early 1970s through the early 1980s placed consistent upward pressure on real marginal cost, contributing to double-digit inflation and general stagnation. The paper compares the Euro area with the U.S., showing that the estimated baseline model tracks actual Euro inflation well. It also presents a decomposition of real marginal cost to understand the forces driving this variable, finding that labor market frictions likely played an important role in both regions. The paper concludes that structural modeling of inflation is desirable, as it is for all other aspects of a macroeconomic framework.