The Reserve Bank of Australia has published a research discussion paper on how Australian firms changed prices around large shocks, focusing on the period after the COVID-19 pandemic. Using a large dataset of web-scraped retail prices, the paper finds that the frequency of price changes increased in 2022 and 2023 alongside strong goods price inflation, and that this shift matters for inflation modelling and monetary policy analysis. Incorporating the microdata-based estimates of price-setting frequency into the Reserve Bank of Australia's dynamic stochastic general equilibrium model, the authors find that ignoring the higher rate of price adjustment during the high-inflation period can cause inflation forecasts to be up to 1.2 percentage points too low, even when the underlying shocks are known. The paper also finds that more frequent price resets steepen the Phillips curve and reduce the trade-off between inflation and output, implying that a hypothetical central bank with unchanged preferences would tend to raise interest rates more aggressively than in a scenario where price rigidity remained stable.
Reserve Bank of Australia2026-05-01
Reserve Bank of Australia research finds higher price reset frequency can leave inflation forecasts up to 1.2 percentage points too low
The Reserve Bank of Australia published a research discussion paper analysing how Australian firms adjusted prices after the COVID-19 pandemic, using web-scraped retail price data. The paper finds that more frequent price changes in 2022–2023 materially affect inflation modelling, with models that ignore higher price adjustment understating inflation by up to 1.2 percentage points and implying a steeper Phillips curve and more aggressive optimal interest rate responses.