Firms quicker to raise prices than cut them during high inflation, RBNZ research finds
New research from New Zealand's Reserve Bank shows Kiwi firms have become more likely to raise prices during periods of high inflation, and less likely to cut them when their own costs fall.
New research published by New Zealand's Reserve Bank has identified a clear asymmetry in how local firms set prices. According to the research, companies have become quicker to raise prices during periods of high inflation compared with past patterns.
The same research shows that, when costs fall, firms are considerably slower to cut prices. This suggests that consumer prices can remain elevated for longer than expected even once inflation begins to ease.
Central bank economists said this asymmetry could complicate the effectiveness of monetary policy. Interest rate cuts may take longer to feed through to consumer prices than they have in previous cycles.
Researchers suggested the behavior stems partly from firms acting cautiously in the face of uncertainty about future costs. Companies want to be confident that a decline in costs will hold before making price cuts permanent.
The findings are seen as significant in shaping the Reserve Bank's approach to fighting inflation. The bank said it will factor this persistence in pricing behavior into future policy decisions.
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