Working Paper: NBER ID: w30505
Authors: Philip Bunn; Lena S. Anayi; Nicholas Bloom; Paul Mizen; Gregory Thwaites; Ivan Yotzov
Abstract: We use data from a large panel survey of UK firms to analyze the economic drivers of price setting since the start of the Covid pandemic. Inflation responded asymmetrically to movements in demand. This helps to explain why inflation did not fall much during the negative initial pandemic demand shock. Energy prices and shortages of labor and materials account for most of the rise during the rebound. Inflation rates across firms have become more dispersed and skewed since the start of the pandemic. We find that average price inflation is positively correlated with the dispersion and skewness of the distribution. Finally, we also introduce a novel measure of subjective inflation uncertainty within firms and show how this has increased during the pandemic, continuing to rise in 2022 even as sales uncertainty dropped back.
Keywords: Price Inflation; COVID-19; Economic Drivers; Inflation Uncertainty; Panel Survey
JEL Codes: C83; D22; D84; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| energy prices (Q41) | inflation (E31) |
| labor shortages (J23) | inflation (E31) |
| material shortages (Q37) | inflation (E31) |
| COVID pandemic (H12) | inflation (E31) |
| positive demand shocks (E00) | inflation (E31) |
| negative demand shocks (E31) | inflation (E31) |
| dispersion of inflation rates (E31) | average inflation (E31) |
| subjective inflation uncertainty (D89) | inflation (E31) |
| higher uncertainty (D89) | profit margins (L21) |
| higher uncertainty (D89) | total factor productivity (TFP) (D24) |