The Speed of Firm Response to Inflation

Ivan Yotzov; Nicholas Bloom; Philip Bunn; Paul Mizen; Gregory Thwaites

doi:10.3386/w32731

The Speed of Firm Response to Inflation

Ivan Yotzov, Nicholas Bloom, Philip Bunn, Paul Mizen & Gregory Thwaites

Working Paper 32731

DOI 10.3386/w32731

Issue Date July 2024

Revision Date February 2025

This paper analyses the response of UK firms to monthly CPI inflation releases using high-frequency data from a large business survey. Firms’ inflation perceptions and expectations respond within hours of new inflation data releases. Firm expectations are most responsive when inflation coverage in the media is elevated, suggesting a key role for the media in focusing attention on data releases. Furthermore, firms respond to changes in inflation data, but not to surprises relative to professional forecasts. This highlights a distinction between “Wall Street”, where financial markets respond to inflation surprises, and “Main Street”, where firms respond to media inflation headlines.

Yotzov is affiliated with the Bank of England. Bloom is affiliated with Stanford University. Bunn is affiliated with the Bank of England. Mizen is affiliated with King’s College London. Thwaites is affiliated with the University of Nottingham. The authors would like to thank the Economic and Social Research Council for funding under grant ES/X013707/1. We would also like to thank the editor, three anonymous referees, comments from Oliver Pfäuti, as well as feedback from the CBBS, MMF, ECB, and AEA conferences. Any views expressed are solely those of the authors 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. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

Nicholas Bloom
I worked for McKinsey and company as a management consultant from 2001-2002. I have not received any funding from them after that time.

I am part of the Toulouse Network for Information Technology, which carries out research on IT and productivity. From this network I receive an annual honorarium, which is funded by Microsoft.

I do occasional consulting on management practices for government and policy agencies, like the Canadian Government, the World Bank, the European Union, the British Government, and the European Bank of Reconstruction and Development.

I produced a report in 2008 for the World Economic Forum on management practices in private equity for which I received an honorarium.

I am a paid speaker at corporate events at which I discuss among other things working from home, management practices and policy uncertainty.
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Ivan Yotzov, Nicholas Bloom, Philip Bunn, Paul Mizen, and Gregory Thwaites, "The Speed of Firm Response to Inflation," NBER Working Paper 32731 (2024), https://doi.org/10.3386/w32731.

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- July 18, 2024

The Speed of Firm Response to Inflation

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