Macroeconomic models distinguish time-dependent pricing, where firms change prices at fixed intervals, from state-dependent pricing, where firms change prices in response to changing demand or costs. This column presents new evidence on how firms set prices using direct questions from a large, economy-wide survey of UK firms. State-dependent pricing has increased since 2019 and is more common in smaller firms, those with higher non-labour costs, and those reporting higher uncertainty. Furthermore, empirical work shows that state-dependent firms respond faster to cost shocks, with larger differences for bigger shocks, consistent with theoretical predictions.

---

6 February 2026

---

VoxEU

---

https://cepr.org/voxeu/columns/why-inflation-may-respond-faster-big-shocks-rise-state-dependent-pricing

This Blog is published under the centre's Growth programme.