State- and time-dependent pricing

Philip Bunn, Nicholas Bloom, Craig Menzies, Paul Mizen, Gregory Thwaites and Ivan Yotzov
Additional contact information
Philip Bunn: Bank of England
Nicholas Bloom: Stanford University
Craig Menzies: Bank of England
Paul Mizen: King's College London
Gregory Thwaites: University of Nottingham

No 1166, Bank of England Staff Working Paper series from Bank of England

Abstract: We present new evidence on how firms set prices using direct questions from a large economy-wide survey of UK firms. Since 2023, 54% of firms report setting prices in a state-dependent manner, as opposed to changing prices at fixed intervals. In contrast, 44% of firms used state-dependent pricing in 2019. Smaller firms, those with a higher share of non-labour costs, and those reporting higher subjective uncertainty around sales and prices are more likely to be state-dependent. We then analyse the implications of price-setting behaviour for inflation dynamics. State-dependent firms experienced a sharper increase in price growth over 2022–23, and also a faster subsequent decline. Using evidence from a randomised survey experiment, firm-level forecast errors and local projections, we show that prices of state-dependent firms respond more strongly to cost shocks. The difference between state-dependent and time-dependent firms is furthermore larger for bigger shocks, consistent with theoretical predictions.

Keywords: Inflation; price-setting; survey data; firms (search for similar items in EconPapers)
JEL-codes: C83 D22 D84 E31 (search for similar items in EconPapers)
Pages: 62
Date: 2026-01-09
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Related works:
Working Paper: State and Time-Dependent Pricing (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:023288

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