Since 2021, developed countries have experienced a significant inflation episode. This column uses Decision Maker Panel data from UK CEOs and CFOs to study firms’ inflation perceptions and expectations around monthly official inflation releases. Firms’ expectations are most responsive when inflation coverage in the media is elevated, suggesting salience is a key issue, as the media focuses attention on data releases. Furthermore, firms respond to changes in headline inflation rates and not to surprises relative to professional forecasts. The results highlight a distinction between financial markets (‘Wall Street’) and firms (‘Main Street’), which should inform modelling of economic behaviour.
Since 2021, developed countries have experienced a significant inflation episode. Aggregate price growth increased following the re-opening of economies after the Covid-19 pandemic, which interacted with tight labour markets and ongoing supply disruptions. A large energy price shock in 2022 further increased inflation and then had second-round effects on prices. Understandably, inflation has been an important topic in the media over this period because inflation had not reached double digits for several decades. In the UK, monthly Consumer Price Index (CPI) inflation data releases are regularly on the front page of news websites such as the BBC or Financial Times.
Despite these headlines, movements in inflation rates are largely expected by professional forecasters who release their forecasts in the days prior to the data release. In other words, changes in headline inflation contain only a small ‘surprise’ component from the point of view of financial markets (‘Wall Street’). Nevertheless, much of the academic literature has focused on the effects of ‘inflation surprises’ (e.g. Gil de Rubio Cruz et al. 2023) as the relevant component of headline inflation. In a recent updated research paper (Yotzov et al. 2025), we analyse whether the same is true at the firm level (‘Main Street’). We ask whether firms respond to changes in headline CPI inflation rates or to surprises relative to professional forecasts. We use data from the Decision Maker Panel (DMP) survey in the UK and an estimation strategy that exploits daily and even hourly variation in firm responses around CPI release dates. Furthermore, we test whether months with higher media coverage of inflation are associated with a stronger response to data releases. We conclude that surprises play little role in changing firm inflation perceptions or expectations, but the change in headline CPI inflation has a stronger impact. 1
Data and approach
We use data from the Decision Maker Panel survey for the empirical analysis. The DMP is a monthly survey of CEOs, CFOs, and Finance Directors across businesses in the UK. 2 It was launched in 2016. Firms are regularly asked about their realisations and their year-ahead expectations for a number of variables, including own prices, sales, employment, and capital expenditure. In addition, starting in May 2022, newly designed questions were introduced in the survey, focusing on CPI inflation perceptions and CPI inflation expectations. We leverage all these data to study the impact of monthly CPI data releases. In addition, we collect data on CPI inflation rates from the Office for National Statistics. We also collect data on forecasts for CPI inflation from Bloomberg. 3 We construct ‘CPI surprises’ as the difference between inflation outturns and professional forecasts.
Our empirical methodology uses the overlap between survey dates (the DMP collects responses from firms for two weeks each month and is able to identify the precise date and time of the survey submission) and the publication date of official CPI inflation data (usually on a Wednesday during the second half of each month). This allows us to test for the effects of data releases at the daily frequency, comparing the average responses of firms in the few days before versus after the latest inflation data are announced. We analyse the response to changes in headline inflation rates and surprises relative to professional forecasts within the same empirical specification. Within these tight windows, few other events are likely to influence firm expectations, which means our results are plausibly causal. The panel dimension of the survey allows us to include a demanding set of firm, time, and release-window fixed effects in our main specification to absorb other influences.
Firms’ inflation perceptions and expectations respond to changes in headline inflation, not inflation surprises
In Figure 1, we analyse the effects of CPI inflation changes on CPI inflation perceptions at the hourly frequency. Each point is a coefficient estimate for a specific hour, and the coefficient size corresponds to the average number of observations in that hour. Strikingly, we find that only a few hours after the 7am data releases, firms are responding to the new CPI data when reporting their inflation perceptions. All point estimates in the post-release hours are positive, indicating that firms are updating their perceptions in line with changes in CPI inflation. Meanwhile, in the hours before the release, the coefficients are close to zero, on average, consistent with no significant pre-trends or anticipation effects in our estimates.
Figure 1 Firms’ inflation perceptions respond to changes in CPI inflation within hours of the release
Notes: This figure plots coefficient estimates of the impact of CPI inflation changes on current CPI inflation perceptions over 2022-2024. The omitted category is 3-4pm on the day before the CPI release (t-16). Each coefficient value is scaled by the average number of observations in the corresponding hour in the sample.
Figure 2 summarises the main findings on the response of firm inflation perceptions and expectations to changes in CPI inflation (Panel A) and CPI surprises (Panel B). In addition to the significant effects on CPI inflation perceptions, Panel A shows that both firms’ own-price expectations and one-year CPI inflation expectations respond significantly to CPI inflation changes. In contrast, Panel B shows that neither inflation perceptions nor expectations respond significantly to CPI surprises relative to professional forecasts. This suggests that firms on ‘Main Street’ form expectations in a different way from financial markets. Finally, we find that the responsiveness to CPI inflation changes is particularly strong during 2022-2024, when inflation was elevated. However, in the earlier, low-inflation years between 2017 and 2021, we find no significant effect of CPI inflation changes or CPI surprises on own-price expectations. One reason why firms may be more responsive when inflation is high is because media coverage of inflation is elevated. We test this by creating a daily index of inflation media coverage for the UK.
Figure 2 Firms’ inflation perceptions and expectations respond to changes in CPI inflation, not CPI surprises
Notes: This figure presents the main results on the impact of CPI inflation changes (Panel A) and CPI surprises (Panel B) on firms’ CPI inflation perceptions, expected year-ahead own-price growth, and year-ahead expected CPI inflation. The bars are the coefficient estimates, and 90% confidence intervals are presented. For further details, see Yotzov et al. (2025). These results are based on data over 2022-2024.
Firms’ inflation expectations are more responsive when inflation media coverage is high
Multiple papers have documented the importance of media coverage in driving and/or amplifying economic fluctuations (e.g. Chahrour et al. 2021, Besley et al. 2023). To test whether firms’ expectations are more responsive when inflation media coverage is elevated, we construct a daily measure of ‘inflation media chatter’ as the share of UK newspaper articles which mention the terms “inflation”or “CPI” or “Consumer Price Index”. Figure 3 shows that this measure is highly correlated with annual CPI inflation trends.
Figure 3 CPI inflation and inflation media chatter
Notes: Inflation media chatter is the share of articles in British newspapers which mention the terms “inflation” or “CPI” or “Consumer Price Index”. The data are gathered from Access World News’ NewsBank service. This measure has been normalised to have an average value of 100 over the period 2010-2019. Both series are three-month moving average.
In the paper, we show that when inflation coverage is high, there is a significant positive effect of CPI inflation changes on own-price expectations. In contrast, when inflation media coverage is low, the impact on own-price expectations is not significant. In both cases, we find no effect of CPI surprises on firms’ inflation expectations. Thus, even though firms appear more attentive to inflation news when media coverage is high, this does not necessarily mean their expectations for CPI inflation are closer to those of professional forecasts.
Media coverage is one specific channel that relates closely to recent research demonstrating strong links between inflation attention, media coverage, and inflation expectations (e.g. Link et al. 2024, Briand et al. 2024). But other mechanisms beyond inflation media coverage can also explain our main findings. Firms may be more ‘backward-looking’ when inflation is elevated (Mann 2022, IMF 2023) or they may perceive CPI headline inflation is more persistent when it is elevated.
Conclusions
We use high-frequency firm-level data from the Decision Maker Panel in the UK to analyse the effects of CPI data releases on firms’ inflation perceptions and expectations. We find that firms adjust inflation perceptions and inflation expectations in response to changes in headline inflation rates, not surprises relative to professional forecasts. This highlights an important difference between firms (‘Main Street’) and financial markets (‘Wall Street’), and the data outturns which drive firm expectations. Furthermore, expectations are more responsive when inflation media coverage is elevated, suggesting an important role for the media in focusing attention on data releases.
Source : VOXeu
