IDEAS home Printed from https://ideas.repec.org/p/fip/fedgif/1424.html
   My bibliography  Save this paper

Retail inventories and inflation dynamics: The price margin channel

Author

Abstract

Using industry-level panel data and plausibly exogenous variation in supply conditions, we estimate the elasticity of retail price margins with respect to inventories along the retailer's optimal pricing curve. We find that this elasticity is negative and statistically significant, implying that lower finished-good inventories lead to higher price margins. We assess the implications of this channel for inflation dynamics within a New Keynesian Phillips curve (NKPC) framework that links inventories to retailers' markup behavior. Incorporating the inventory-sales ratio into the NKPC markedly improves the model's empirical fit and helps account for two notable recent inflation episodes: the missing disinflation of 2009â 2011 and the COVID-era surge.

Suggested Citation

  • Neil Mehrotra & Hyunseung Oh & Julio L. Ortiz, 2025. "Retail inventories and inflation dynamics: The price margin channel," International Finance Discussion Papers 1424, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1424
    DOI: 10.17016/IFDP.2025.1424
    as

    Download full text from publisher

    File URL: https://www.federalreserve.gov/econres/ifdp/files/ifdp1424.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.17016/IFDP.2025.1424?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle.
    2. Ricardo Reis, 2023. "Four Mistakes in the Use of Measures of Expected Inflation," AEA Papers and Proceedings, American Economic Association, vol. 113, pages 47-51, May.
    3. James D. Hamilton, 2018. "Why You Should Never Use the Hodrick-Prescott Filter," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 831-843, December.
    4. Cavallo, Alberto & Kryvtsov, Oleksiy, 2023. "What can stockouts tell us about inflation? Evidence from online micro data," Journal of International Economics, Elsevier, vol. 146(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Burger, John D. & Warnock, Francis E. & Warnock, Veronica Cacdac, 2022. "A natural level of capital flows," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 1-16.
    2. Leah Platt Boustan & Matthew E. Kahn & Paul W. Rhode, 2012. "Moving to Higher Ground: Migration Response to Natural Disasters in the Early Twentieth Century," American Economic Review, American Economic Association, vol. 102(3), pages 238-244, May.
    3. Crown, Daniel & Faggian, Alessandra & Corcoran, Jonathan, 2020. "Foreign-Born graduates and innovation: Evidence from an Australian skilled visa program✰,✰✰,★,★★," Research Policy, Elsevier, vol. 49(9).
    4. Colas, Mark & Saulnier, Emmett, 2023. "Vertical migration externalities," Regional Science and Urban Economics, Elsevier, vol. 101(C).
    5. Innocenti, Federico & McCormick, Barry & Nicodemo, Catia, 2025. "Gatekeeping in primary care: Analysing GP referral patterns and specialist consultations in the NHS," Economic Modelling, Elsevier, vol. 142(C).
    6. Fang, Mingyue & Nie, Huihua & Shen, Xinyi, 2023. "Can enterprise digitization improve ESG performance?," Economic Modelling, Elsevier, vol. 118(C).
    7. Timothy J. Bartik & Nathan Sotherland, 2019. "Local Job Multipliers in the United States: Variation with Local Characteristics and with High-Tech Shocks," Upjohn Working Papers 19-301, W.E. Upjohn Institute for Employment Research.
    8. Peydró, José-Luis & Jiménez, Gabriel & Kenan, Huremovic & Moral-Benito, Enrique & Vega-Redondo, Fernando, 2020. "Production and financial networks in interplay: Crisis evidence from supplier-customer and credit registers," CEPR Discussion Papers 15277, C.E.P.R. Discussion Papers.
    9. Lídia Farré & Francesco Fasani & Hannes Mueller, 2018. "Feeling useless: the effect of unemployment on mental health in the Great Recession," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-34, December.
    10. Pulapre Balakrishnan & M Parameswaran, 2019. "Modeling the Dynamics of Inflation in India," Working Papers 16, Ashoka University, Department of Economics.
    11. Hertrich Markus, 2019. "A Novel Housing Price Misalignment Indicator for Germany," German Economic Review, De Gruyter, vol. 20(4), pages 759-794, December.
    12. Owolabi, Adegboyega O. & Berdiev, Aziz N. & Saunoris, James W., 2022. "Is the shadow economy procyclical or countercyclical over the business cycle? International evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 257-270.
    13. Ruijun Hou & Samuel Baker & Stephanie von Hinke & Hans H. Sievertsen & Emil S{o}rensen & Nicolai Vitt, 2025. "Long-term Health and Human Capital Effects of Early-Life Economic Conditions," Papers 2507.08159, arXiv.org.
    14. Amuedo-Dorantes, Catalina & Arenas-Arroyo, Esther & Sevilla, Almudena, 2018. "Immigration enforcement and economic resources of children with likely unauthorized parents," Journal of Public Economics, Elsevier, vol. 158(C), pages 63-78.
    15. Joyendu Bhadury & Samuel P. Troy, 2014. "Staid," Economic Development Quarterly, , vol. 28(4), pages 364-376, November.
    16. Francesco Simone Lucidi, 2019. "Real-time signals anticipating credit booms in Euro Area countries," Working Papers in Public Economics 189, Department of Economics and Law, Sapienza University of Roma.
    17. Teresa Garcia-Milà & Therese J. McGuire, 2001. "Tax incentives and the city," Economics Working Papers 631, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2001.
    18. Kirill Borusyak & Peter Hull & Xavier Jaravel, 2025. "Design-based identification with formula instruments: a review," The Econometrics Journal, Royal Economic Society, vol. 28(1), pages 83-108.
    19. Ferdinando Monte & Stephen J. Redding & Esteban Rossi-Hansberg, 2018. "Commuting, Migration, and Local Employment Elasticities," American Economic Review, American Economic Association, vol. 108(12), pages 3855-3890, December.
    20. Joan Monras, 2020. "Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis," Journal of Political Economy, University of Chicago Press, vol. 128(8), pages 3017-3089.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:fip:fedgif:1424. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.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.