Firm Inflation Uncertainty
We introduce a new measure of own-price inflation uncertainty using firm-level data from a large and representative survey of UK businesses. Inflation uncertainty increased significantly from the start of 2021 and reached a peak in the second half of 2022, even as a similar measure of sales uncertainty declined. We also find large cross-sectional differences in inflation uncertainty, with uncertainty particularly elevated for smaller firms and those in the goods sector. Finally, we show that firms which are more uncertain about their own price expectations experience higher forecast errors 12 months later. These findings suggest that studying inflation uncertainty at the firm level may be an important new dimension to understanding firm performance.
The authors would like to thank the Economic and Social Research Council, Nottingham and Stanford universities for financial support. A shorter version of this paper appeared in the May 2023 issue of the AEA Papers and Proceedings. The current version of the paper includes data from the Decision Maker Panel up to April 2023, whereas the AEA P&P paper includes data up to December 2022. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the Bank of England or to state Bank of England policy. This paper should therefore not be reported as representing the views of the Bank of England or members of the Monetary Policy Committee, Financial Policy Committee or Prudential Regulation Committee, nor those of the National Bureau of Economic Research.
Ivan Yotzov & Lena Anayi & Nicholas Bloom & Philip Bunn & Paul Mizen & Özgen Öztürk & Gregory Thwaites, 2023. "Firm Inflation Uncertainty," AEA Papers and Proceedings, vol 113, pages 56-60. citation courtesy of