Broad-based cost pressures needn’t spiral higher

An array of data show that US and eurozone firms are currently experiencing particularly broad input cost shocks. Exceptional rises in the cost of inputs, such as intermediate goods prices, aren’t being offset by other costs falling or rising at a weaker-than-normal pace.

What you will learn:

• The global nature of many of these cost shocks and their high visibility may lead firms to expect competitors will raise prices and believe that customers will be more accepting of price hikes than normal.
• If that’s the case, the risk of further sustained price rises and second-round inflation effects would increase.
• Firms might try to push margins higher as they react to recent cost hikes, which would lead to more sustained high inflation.