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Consumer preferences and inflation diffusion

Published online by Cambridge University Press:  10 March 2025

Christian Glocker  and
Philipp Piribauer
Christian Glocker*
Affiliation:
Austrian Institute of Economic Research, Vienna, Austria
Philipp Piribauer
Affiliation:
Austrian Institute of Economic Research, Vienna, Austria
*
Corresponding author: Christian Glocker; Email: [email protected]
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Abstract

We study how consumer preferences affect the transmission of microeconomic price shocks to consumer price index (CPI) inflation. These preferences give rise to complementarities and substitutions between goods, generating demand-driven cross-price dependencies that either amplify or mitigate the impact of price shocks. Our results demonstrate that while both effects are present, positive spillovers due to complementarities dominate. The magnitude of these cross-price effects is significant, demonstrating their importance in shaping CPI inflation dynamics. Most importantly, demand-driven price linkages decisively shape the impact of producer prices on CPI inflation. These findings underscore the need to take into account demand-driven price dependencies when assessing the impact of price shocks on CPI inflation, rather than relying solely on supply-related ones.

Keywords

inflationconsumer behaviorcross price dependenciesnetwork analysisC11C53D85E31
Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e80
Copyright
© The Author(s), 2025. Published by Cambridge University Press

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