Year: 2025
Type: article
Abstract: Using industry-level panel data and plausibly exogenous variation in supply conditions, we estimate the elasticity of retail price margins with respect to inventories along the retailer's optimal pricing curve. We find that this elasticity is negative and statistically significant, implying that lower finished-good inventories lead to higher price margins. We assess the implications of this channel for inflation dynamics within a New Keynesian Phillips curve (NKPC) framework that links inventories to retailers' markup behavior. Incorporating the inventory-sales ratio into the NKPC markedly improves the model's empirical fit and helps account for two notable recent inflation episodes: the missing disinflation of 2009–2011 and the COVID-era surge.
Authors: Neil Mehrotra, Hyunseung Oh, Julio L. Ortiz
Institutions: Federal Reserve, Federal Reserve Board of Governors
Language: English
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4415517009