Work

The Speed of Firm Response to Inflation

Year: 2025

Type: article

Abstract: This paper analyses the response of UK firms to monthly CPI inflation releases using high-frequency data from a large business survey. Firms’ inflation perceptions and expectations respond within hours of new inflation data releases. Firm expectations are most responsive when inflation coverage in the media is elevated, suggesting a key role for the media in focusing attention on data releases. Furthermore, firms respond to changes in inflation data, but not to surprises relative to professional forecasts. This highlights a distinction between ‘Wall Street’, where financial markets respond to inflation surprises, and ‘Main Street’, where firms respond to media inflation headlines.

Source: Journal of the European Economic Association

DOI: 10.1093/jeea/jvaf044

Authors: Ivan Yotzov, Nicholas Bloom, Philip Bunn, Paul Mizen, Gregory Thwaites

Institutions: Bank of England, Stanford University, King's College London, University of Nottingham

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funders: King's College London, Economic and Social Research Council

Award: Decision Maker Panel