Working Paper No. 394
How do individual UK producer prices behave?
Philip Bunn(1) and Colin Ellis(2)
Abstract
This paper examines the behaviour of individual producer prices in the United Kingdom, and uncovers a
number of stylised facts about pricing behaviour. First, on average 26% of producer prices change each
month, although there is considerable heterogeneity between sectors and price changes occur less
frequently when measured by the average for individual products. Second, the probability of price
changes is not constant over time: prices are most likely to change one, four and twelve months after
they were previously set. Third, the distribution of price changes is wide, although a significant number
of changes are relatively small and close to zero. Fourth, prices that change more frequently tend to do
so by less. And fifth, price changes are much less persistent at the disaggregated level than aggregate
inflation data imply. We find that conventional pricing theories struggle to match these results,
particularly the marked heterogeneity.
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