Price rigidities, input costs, and inflation expectations: understanding firms' pricing decisions from micro data

Untitled

“…Instead, we show that by asking business decision makers about important price-setting determinants they care about -in this case their own-firm unit costs -we can aggregate these firm-specific views into series that are closely related to the aggregate inflation dynamics central bankers care about. In this sense, our work is supportive of the notion forwarded in Mackowiak and Wiederholt (2009), Riggi and Tagliabracci (2022), Afrouzi (2023) and others, that firms pay much more attention to idiosyncratic conditions. However, drawing on the lessons gleaned from survey work eliciting firm-level expectations (such as Altig et al ( 2022)) we argue that firm-level unit cost expectations warrant inclusion into the existing suite of survey inflation expectations measures economists and policymakers use to monitor inflation developments.…”

“…The views espoused by business decision-makers in response to these questions align well with recent quantitative survey work. For example, Riggi and Tagliabracci (2022), using survey of Italian firms, find what matters for current pricing choices are firms' beliefs about future developments in their own output prices, rather than expectations of aggregate inflation. And, in a coordinated, multiple-survey effort to investigate cost-price pass through, Dogra et al (2023) find that aggregate CPI inflation expectations have an insignificant effect on year-ahead expected price growth after controlling for expected cost growth.…”

New age of central banking in emerging markets

“…See, e.g.,Alvarez et al (2019) andRiggi and Tagliabracci (2022) for evidence using Argentinian and Italian micro data, respectively. 9 See e.g.,Bianchi (2013) andClarida et al (2000).…”