National Bank of Denmark publishes working paper finding U.S. firms reset prices based on both realized and expected costs

The National Bank of Denmark has published a working paper presenting survey evidence that U.S. firms adjust prices in response to both costs already incurred and costs they expect over the following year. The paper finds incomplete pass-through of current costs to reset prices at about 68 percent, while reset prices also reflect about 43 percent of expected costs over the next year, including expected cost effects from new trade policies introduced in 2025. Using a new survey that separately measures realized cost changes since the last price adjustment and expected cost changes over the subsequent year, the authors use firms’ perceived tariff exposure as an instrument to identify the causal effects of current and expected costs on pricing. The results indicate that the balance between the two channels differs across firms. Frequent price adjusters respond mainly to current costs, while sticky-price firms place more weight on expectations. Goods producers adjust more contemporaneously, whereas services firms are more forward-looking, a pattern also seen among firms facing high trade uncertainty. The paper says the evidence is more consistent with endogenous pricing frameworks or imperfect-information models in which uncertainty increases the role of expectations. The release notes that the working paper is part of the National Bank of Denmark’s research contribution to professional debate and that the views expressed are those of the authors, not necessarily those of the central bank.