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

Sebastian Heise, Fatih Karahan and Aysegul Sahin

No 27663, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Price inflation in the U.S. has been sluggish and 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 pick-up in the last two decades. We set up a theoretical framework where markups and pass-through are a function of firms' market shares and show that increased import competition and rising market concentration reduce pass-through from wages to prices. We then use industry-level data and find strong support for these two channels consistent with the implications of our model.

JEL-codes: E24 E31 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-mac
Note: EFG ME
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Citations: View citations in EconPapers (21)

Published as SEBASTIAN HEISE & FATIH KARAHAN & AYŞEGÜL ŞAHIN, 2022. "The Missing Inflation Puzzle: The Role of the Wage‐Price Pass‐Through," Journal of Money, Credit and Banking, vol 54(S1), pages 7-51.

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