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How do individual UK consumer prices behave?

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  • Bunn, Philip

    ()
    (Bank of England)

  • Ellis, Colin

    ()
    (BVCA and University of Birmingham)

Abstract

This paper examines the behaviour of individual consumer prices in the United Kingdom, and uncovers a number of stylised facts about pricing behaviour. First, on average 19% of prices change each month, although this falls to 15% if sales are excluded. Second, the probability of price changes is not constant over time. Third, goods prices change more frequently than services prices. Fourth, the distribution of price changes is wide, although a significant number of changes are relatively small and close to zero. Fifth, prices that change more frequently tend to do so by less. We find that conventional pricing theories struggle to match these results, particularly the marked heterogeneity, which argues against the use of ‘representative agent’ models.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 438.

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Length: 40 pages
Date of creation: 31 Oct 2011
Date of revision:
Handle: RePEc:boe:boeewp:0438

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Keywords: Consumer prices; price-setting behaviour.;

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References

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  1. Josef Baumgartner & Ernst Glatzer & Fabio Rumler & Alfred Stiglbauer, 2005. "How Frequently Do Consumer Prices Change in Austria? Evidence from Micro CPI Data," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 101, Oesterreichische Nationalbank (Austrian Central Bank).
  2. Hoffmann, Johannes & Kurz-Kim, Jeong-Ryeol, 2006. "Consumer price adjustment under the microscope: Germany in a period of low inflation," Discussion Paper Series 1: Economic Studies 2006,16, Deutsche Bundesbank, Research Centre.
  3. Capie,Forrest, 2010. "The Bank of England," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521192828.
  4. Fabiani, Silvia & Druant, Martine & Hernando, Ignacio & Kwapil, Claudia & Landau, Bettina & Loupias, Claire & Martins, Fernando & Mathä, Thomas Y. & Sabbatini, Roberto & Stahl, Harald & Stokman, Ad C, 2005. "The pricing behaviour of firms in the euro area: new survey evidence," Working Paper Series, European Central Bank 0535, European Central Bank.
  5. Patrick Lünnemann & Thomas Y. Mathä, 2010. "Consumer price behaviour: evidence from Luxembourg micro data," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 177-192.
  6. Bunn, Philip & Ellis, Colin, 2010. "How do individual UK producer prices behave?," Bank of England working papers, Bank of England 394, Bank of England.
  7. Mónica Dias & Daniel Dias & Pedro Duarte Neves, 2004. "Stylised Features of Price Setting Behaviour in Portugal: 1992-2001," Working Papers, Banco de Portugal, Economics and Research Department w200405, Banco de Portugal, Economics and Research Department.
  8. Boivin, Jean & Giannoni, Marc P. & Mihov, Ilian, 2006. "Sticky prices and monetary policy: Evidence from disaggregated US data," CFS Working Paper Series 2007/14, Center for Financial Studies (CFS).
  9. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(4), pages 1415-1464, November.
  10. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  11. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2003. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," American Economic Review, American Economic Association, American Economic Association, vol. 93(1), pages 15-37, March.
  12. Luis J. Álvarez & Pablo Burriel & Ignacio Hernando, 2005. "Do decreasing hazard functions for price changes make any sense?," Banco de Espa�a Working Papers 0508, Banco de Espa�a.
  13. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 20(2), pages 171-192, Spring.
  14. Luis J. Álvarez & Ignacio Hernando, 2004. "Price setting behaviour in Spain: stylised facts using consumer price micro data," Banco de Espa�a Working Papers 0422, Banco de Espa�a.
  15. Felix Ritchie, 2008. "Secure access to confidential microdata: four years of the Virtual Microdata Laboratory," Economic and Labour Market Review, Palgrave Macmillan, vol. 2(5), pages 29-34, May.
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Cited by:
  1. Flamini, Alessandro & Ascari, Guido & Rossi, Lorenza, 2012. "Industrial Transformation, Heterogeneity in Price Stickiness, and the Great Moderation," Dynare Working Papers 24, CEPREMAP.
  2. Philip Bunn & Colin Ellis, 2012. "Examining The Behaviour Of Individual UK Consumer Prices," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 122(558), pages F35-F55, 02.

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