Why companies get inflation wrong

In recent years policymakers have worried that inflation expectations would become “unanchored”: that a long period of high inflation would lead both households and firms to expect more price rises in future. This is a particularly concerning prospect since such beliefs can become self-fulfilling, with workers bargaining for heftier pay rises to compensate for rising prices. Economists have often focused on how expectations take hold among households, but more recent research looks at how firms respond to rising prices. It not only holds a few surprises—it also offers fresh insight into why the last mile is quite so hard.