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The asymmetric and heterogeneous pass-through of input prices to firms' expectations and decisions

Author

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  • Fiorella De Fiore
  • Marco Jacopo Lombardi
  • Giacomo Mangiante

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 short-term 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.

Suggested Citation

  • Fiorella De Fiore & Marco Jacopo Lombardi & Giacomo Mangiante, 2025. "The asymmetric and heterogeneous pass-through of input prices to firms' expectations and decisions," BIS Working Papers 1305, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1305
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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