IDEAS home Printed from https://ideas.repec.org/p/chf/rpseri/rp2605.html

The Value of Pricing Power When Investors Benchmark to Headline Inflation

Author

Listed:
  • Amra Hrustanovic

    (University of Zurich - Department of Finance; Swiss Finance Institute)

  • Alexander F. Wagner

    (University of Zurich - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute)

Abstract

We study equity valuation when investors benchmark firms against headline inflation although pass-through varies across firms. In standard valuation, inflation is valueneutral even with heterogeneous pass-through if investors use firm-specific inflation. Benchmarking to headline inflation conflates nominal cash-flow growth with real performance and shifts discount rates at inflation announcements. Pricing power shapes both channels by enabling greater pass-through and reducing perceived inflation exposure. Empirically, higher-pricing-power firms exhibit smaller stock-price declines and smaller cost-of-capital increases following inflation surprises. The April 2025 tariff announcement yields similar pricing-power-based return differences. These results offer new insights into inflation's implications for asset pricing and valuation.

Suggested Citation

  • Amra Hrustanovic & Alexander F. Wagner, 2026. "The Value of Pricing Power When Investors Benchmark to Headline Inflation," Swiss Finance Institute Research Paper Series 26-05, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2605
    as

    Download full text from publisher

    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6005114
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp2605. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ridima Mittal (email available below). General contact details of provider: https://edirc.repec.org/data/fameech.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.