Inflation Expectations and the Supply Chain

Elías Albagli, Francesco Grigoli () and Emiliano Luttini
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Elías Albagli: Central Bank of Chile
Francesco Grigoli: IMF

IMF Economic Review, 2025, vol. 73, issue 3, No 6, 819-850

Abstract: Abstract Leveraging a unique dataset on Chilean firms merging expectation surveys and records from the VAT and customs registries, we study how firms form inflation expectations. We show that firms rely on price changes observed when purchasing inputs from their suppliers to form expectations about inflation, even if these are orthogonal to changes in aggregate prices. Our findings point to the existence of information frictions and add to the evidence rejecting the full-information rational expectations hypothesis. Moreover, estimating a firm-level Phillips’ curve suggests that firms’ beliefs about inflation are a key determinant for their price-setting decisions. The mechanism we highlight in this paper can lead to more persistent inflation dynamics and weaken the expectation channel of policies.

Keywords: E30; E31 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41308-025-00285-y

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