The Missing Inflation Puzzle: The Role of the Wage‐Price Pass‐Through

Sebastian Heise, Fatih Karahan and Aysegul Sahin

Journal of Money, Credit and Banking, 2022, vol. 54, issue S1, 7-51

Abstract: Price inflation in the U.S. has been slow to pick up in the last two decades. We show that this missing inflation can be traced to a growing disconnect between unemployment and core goods inflation. We exploit rich industry‐level data to show that weakening pass‐through from wages to prices in the goods‐producing sector is an important source of the slow inflation pickup. We develop a theory where markups and pass‐through depend on firms' market shares and show that increased import competition and rising market concentration reduce pass‐through from wages to prices. We find strong empirical support for these predictions.

Date: 2022
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Citations: View citations in EconPapers (13)

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https://doi.org/10.1111/jmcb.12896

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Working Paper: The Missing Inflation Puzzle: The Role of the Wage-Price Pass-Through (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:54:y:2022:i:s1:p:7-51

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