The asymmetric and heterogeneous pass-through of input prices to firms’ expectations and decisions - Fiorella de Fiore

Speaker: Fiorella de Fiore, Bank for International Settlements, CEPR, SUERF

Location: online or at Kiel Institute for the World Economy, Chausseestraße 111, 10115 Berlin

Organizers: Kiel Institute for the World Economy, CEPR

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Abstract: This paper studies the pass-through of input price shocks to firms’ expectations and pricing decisions using firm-level data from the Bank of Italy’s Survey on Inflation and Growth Expectations. We find a strong and asymmetric pass-through: positive input price shocks significantly raise firms’ price expectations, realised prices and shortterm inflation expectations, while negative shocks have little impact. The pass-through varies systematically with firm characteristics: it is higher for upstream firms and for firms facing greater uncertainty, adjusting prices more frequently, or operating with thinner profit margins. Macroeconomic conditions also matter: firms’ expectations respond more strongly to business-specific signals in periods of low inflation and to aggregate signals in periods of high inflation. Finally, we show that providing firms with information about current inflation dampens the pass-through to inflation expectations, underscoring the importance of central bank communication.