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Inflation Expectations and the Supply Chain

Author

Listed:
  • Elías Albagli

    (Central Bank of Chile)

  • Francesco Grigoli

    (IMF)

  • Emiliano Luttini

    (World Bank)

Abstract

Leveraging a unique dataset on Chilean firms merging expectation surveys and records from the VAT and customs registries, we study how firms form inflation expectations. We show that firms rely on price changes observed when purchasing inputs from their suppliers to form expectations about inflation, even if these are orthogonal to changes in aggregate prices. Our findings point to the existence of information frictions and add to the evidence rejecting the full-information rational expectations hypothesis. Moreover, estimating a firm-level Phillips’ curve suggests that firms’ beliefs about inflation are a key determinant for their price-setting decisions. The mechanism we highlight in this paper can lead to more persistent inflation dynamics and weaken the expectation channel of policies.

Suggested Citation

  • Elías Albagli & Francesco Grigoli & Emiliano Luttini, 2025. "Inflation Expectations and the Supply Chain," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 73(3), pages 819-850, September.
    • Handle: RePEc:pal:imfecr:v:73:y:2025:i:3:d:10.1057_s41308-025-00285-y
    DOI: 10.1057/s41308-025-00285-y
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    Keywords

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    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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