Box 1: Firms’ pricing behavior returns to pre-pandemic approaches
During the recovery from the pandemic, many companies have changed their pricing behavior in response to an environment of:
- increased cost growth
- strong demand
- widespread supply restrictions
As companies and their competitors faced similar supply chain problems, the lack of choice made customers more willing to accept higher prices. The ability of companies to pass on higher costs to their customers increased. Under these circumstances, companies made price changes that were larger and more frequent than usual. As in pre-pandemic periods, companies set their prices primarily on the basis of their own costs and competitive conditions, not on past inflation or projected inflation. In other words, during the recovery, companies’ inflation expectations – even if they were high – did not play a major role in their pricing decisions.
In the third quarter, most companies that have changed their pricing practices have already reverted to their pre-pandemic behavior or will soon return to their pre-pandemic behavior, including:
- changing prices rarely
- waiting for signs of concrete cost increases
- pay close attention to the prices of competitors
Still, some companies expect the unusual pricing to continue until supply chain and inventory issues are resolved.