Tim Eisert's webpage

Link to paper

How do supply shocks to inflation generalize? Evidence from the pandemic era in Europe

Abstract:
We document how the interaction of supply chain pressures, heightened household inflation expectations, and firm pricing power contributed to the pandemic-era surge in consumer price inflation in the euro area. Initially, supply chain pressures increased inflation, especially in manufacturing sectors, through a cost-push channel and raised inflation expectations. Subsequently, the cost-push channel intensified as firms with high pricing power increased product markups in sectors witnessing high demand, including in services sectors that were initially not exposed to supply chain constraints. Eventually, even though supply chain pressures eased, these firms were able to further increase markups due to the stickiness of inflation expectations. The resulting persistent impact on inflation  suggests supply-side impulses can generalize into broad-based inflation via an interaction of household expectations and firm pricing power.