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Price-setting in a high-inflation environment

Since 2021, inflation rates have increased sharply in many advanced economies. Philip Bunn, Nicholas Bloom, Paul Mizen, Ozgen Ozturk, Gregory Thwaites and Ivan Yotzov study firm pricing strategies during the recent period of high inflation. Around 60% of UK firms reported that they have been setting prices by responding to specific events (state-dependent), with the remaining 40% adjusting prices at fixed intervals (time-dependent). Furthermore, state-dependent firms changed prices more often and saw a larger and earlier initial rise in inflation rates than time-dependent firms. Such a non-linear response might help to explain why inflation has risen so much.

Nicholas Bloom, Philip Bunn, Paul Mizen, Gregory Thwaites, Ivan Yotzov and Özgen Öztürk

7 August 2023

Vox EU

This work is published under POID and the CEP's Growth programme.

This publication comes under the following CEP theme: UK productivity and policy