Firms' Inflation and Wage Expectations during the Inflation Surge

Erwan Gautier, Frédérique Savignac and Olivier Coibion

No 33799, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using a new survey of French firms’ inflation expectations that predates the inflation spike, we document i) evidence on the anchoring of inflation expectations during the inflation surge, and ii) the relevance of inflation expectations for firms’ decisions. First, we show that inflation expectations under-responded to the initial surge but then persistently overshot actual inflation dynamics. As inflation rose, firms initially perceived inflation to be less persistent than in previous years, an effect that dissipated over time. Second, we find that inflation expectations correlate with firms’ wage and price decisions. One-year expectations matter more than long-term expectations. During the inflation surge, wage and price decisions became increasingly disconnected from inflation expectations. This suggests that the scope for wage-price spirals is likely more limited than one might have expected from the surge in inflation and inflation expectations.

JEL-codes: E30 E4 E5 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-eur and nep-mon
Note: EFG ME
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