Why inflation may respond faster to big shocks: The rise of state-dependent pricing by Philip Bunn, Nicholas Bloom, Craig Menzies, Paul Mizen, Gregory Thwaites, Ivan Yotzov published by (2/2026).
“Macroeconomic models distinguish time-dependent pricing, where firms change prices at fixed intervals, from state-dependent pricing, where firms change prices in response to changing demand or costs. This column presents new evidence on how firms set prices using direct questions from a large, economy-wide survey of UK firms. State-dependent pricing has increased since 2019 and is more common in smaller firms, those with higher non-labour costs, and those reporting higher uncertainty. Furthermore, empirical work shows that state-dependent firms respond faster to cost shocks, with larger differences for bigger shocks, consistent with theoretical predictions…”