Delayed Inflation in Supply Chains: Theory and Evidence

115 Pages Posted: 6 Jun 2023 Last revised: 26 Dec 2023

See all articles by Robert Minton

Robert Minton

Board of Governors of the Federal Reserve System

Brian Wheaton

UCLA - Anderson School of Management

Date Written: December 4, 2023

Abstract

How fully and quickly do supply chains transmit commodity price movements into inflation? In a production network with sticky prices, we show that the network delays full propagation of commodity price shocks to downstream firms. This delay from downstreamness occurs even when firms are forward-looking, and myopia amplifies it. We confirm the theory using shift-share designs exploiting firms' differential exposures to commodities through their networks. We find forward-looking responses to oil price movements but myopic responses for other commodities. Applying our model, we show that delayed network propagation of oil price movements forecasts the future path of core inflation.

Keywords: Inflation, Pass-through, Supply chains, Production network, Multi-sector, Oil, Commodities, Core inflation, Myopia

JEL Classification: E31, E37, D57

Suggested Citation

Minton, Robert and Wheaton, Brian, Delayed Inflation in Supply Chains: Theory and Evidence (December 4, 2023). Available at SSRN: https://ssrn.com/abstract=4470302 or http://dx.doi.org/10.2139/ssrn.4470302

Robert Minton

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Brian Wheaton (Contact Author)

UCLA - Anderson School of Management ( email )

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110 Westwood Plaza
Los Angeles, CA 90095
United States

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