Firms quicker to raise prices than cut them during high inflation, RBNZ research finds
Research from the Reserve Bank of New Zealand suggests that firms are faster to raise prices during inflation than they are to lower them when costs decrease. Chief economist Paul Conway noted that digital technology has made price adjustments more responsive to inflation expectations.
Why it matters
Understanding asymmetric pricing behavior is crucial for central banks to manage inflation expectations and set effective monetary policy.
New Reserve Bank research shows Kiwi firms have become more likely to increase prices during periods of high inflation and are less likely to cut them when costs fall.
Reserve Bank chief economist Paul Conway unveiled the research at a speech in Wellington on Tuesday.
Conway said advances in digital technology had made it cheaper and easier for firms to change prices, allowing them to respond more quickly to shifts in inflation expectations.
"Price-setting has become more asymmetric, with firms quicker to pass through rising costs than to reverse price increases as inflation recedes," Conway said.
Conway said cost pressures were the main reason businesses passed on costs, with 90 percent of firms citing labour and other input costs as key.
RNZ asked Conway why firms were quicker to raise prices than cut them during inflation spikes.
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