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What does new micro price evidence tell us about inflation dynamics and monetary policy transmission?

Author

Listed:
  • Dedola, Luca
  • Henkel, Lukas
  • Höynck, Christian
  • Osbat, Chiara
  • Santoro, Sergio

Abstract

The pricing decisions of firms are a key determinant of inflation. To understand inflation dynamics, it is necessary to analyse how often and by how much individual prices change. This article discusses what micro price data gathered by the European System of Central Banks’ Price-setting Microdata Analysis Network (PRISMA) tell us about the way firms set their prices. The results point to state dependence in pricing, whereby firms change prices more frequently following large shocks. This also affects the transmission of monetary policy. Evidence from recent microdata as at the end of 2023 suggests that, after an increase in the frequency of price changes following the unusually large shocks experienced since 2020, price changes in the euro area are starting to behave in a more similar way to the pre-pandemic period. JEL Classification: E31, E52

Suggested Citation

  • Dedola, Luca & Henkel, Lukas & Höynck, Christian & Osbat, Chiara & Santoro, Sergio, 2024. "What does new micro price evidence tell us about inflation dynamics and monetary policy transmission?," Economic Bulletin Articles, European Central Bank, vol. 3.
    • Handle: RePEc:ecb:ecbart:2024:0003:2
    Note: 80922
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    More about this item

    Keywords

    inflation; micro prices; monetary policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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