What does new micro price evidence tell us about inflation dynamics and monetary policy transmission?

Luca Dedola, Lukas Henkel, Christian Höynck, Chiara Osbat and Sergio Santoro

Economic Bulletin Articles, 2024, vol. 3

Abstract: The pricing decisions of firms are a key determinant of inflation. To understand inflation dynamics, it is necessary to analyse how often and by how much individual prices change. This article discusses what micro price data gathered by the European System of Central Banks’ Price-setting Microdata Analysis Network (PRISMA) tell us about the way firms set their prices. The results point to state dependence in pricing, whereby firms change prices more frequently following large shocks. This also affects the transmission of monetary policy. Evidence from recent microdata as at the end of 2023 suggests that, after an increase in the frequency of price changes following the unusually large shocks experienced since 2020, price changes in the euro area are starting to behave in a more similar way to the pre-pandemic period. JEL Classification: E31, E52

Keywords: inflation; micro prices; monetary policy (search for similar items in EconPapers)
Date: 2024-04
Note: 80922
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbart:2024:0003:2

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