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The speed of firm response to inflation

Ivan Yotzov, Nicholas Bloom, Philip Bunn, Paul Mizen and Gregory Thwaites
Additional contact information
Philip Bunn: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Gregory Thwaites: University of Nottingham

No 1085, Bank of England working papers from Bank of England

Abstract: This paper analyses the response of firms to monthly CPI inflation releases using high-frequency data from a large economy-wide business survey. CPI inflation perceptions respond very quickly, in a matter of hours after the release. We also find that firms’ expected own-price growth has a strong positive correlation with changes in CPI inflation, particularly for increases in inflation. This sensitivity is stronger when inflation is high. Firms are also more responsive when inflation coverage in the media is elevated and appear to have had a supply-side view of the economy since 2022: higher aggregate inflation leads to lower expected sales volume growth and higher expected cost growth. Firms also seem to anticipate the monetary policy response, as positive inflation changes are associated with higher expected borrowing rates.

Keywords: Inflation; inflation expectations; survey data; firms (search for similar items in EconPapers)
JEL-codes: C83 D22 D84 E31 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2024-08-06
New Economics Papers: this item is included in nep-bec and nep-mon
References: View references in EconPapers View complete reference list from CitEc
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Related works:
Working Paper: The Speed of Firm Response to Inflation (2024) Downloads
Working Paper: The Speed of Firm Response to Inflation (2024) Downloads
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