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Propagation of Price Shocks to CPI Inflation: The Role of Cross-demand Dependencies

Author

Listed:
  • Christian Glocker

    (WIFO)

  • Philipp Piribauer

    (WIFO)

Abstract

Cross-demand creates links between goods which cause demand-driven cross-price dependencies. We construct a theoretical model to analyze their role in propagating microeconomic price shocks to the CPI inflation rate and examine their empirical relevance using spatial econometric techniques. The results highlight the importance of complementarity and substitution properties between goods in exacerbating or mitigating price shocks. This contrasts with the propagation through the production network. Most importantly, demand-driven cross-price dependencies determine the impact of producer prices on the CPI inflation rate.

Suggested Citation

  • Christian Glocker & Philipp Piribauer, 2023. "Propagation of Price Shocks to CPI Inflation: The Role of Cross-demand Dependencies," WIFO Working Papers 663, WIFO.
    • Handle: RePEc:wfo:wpaper:y:2023:i:663
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    File URL: https://www.wifo.ac.at/wwa/pubid/70976
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    Keywords

    Inflation; Consumer behaviour; Cross price dependencies; Network analysis;
    All these keywords.

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