Firm Inflation Uncertainty

We introduce a new measure of own-price inflation uncertainty using firm-level data from a large and representative survey of UK businesses. Inflation uncertainty increased significantly from the start of 2021 and reached a peak in the second half of 2022, even as a similar measure of sales uncertainty declined. We also find large cross-sectional differences in inflation uncertainty, with uncertainty particularly elevated for smaller firms and those in the goods sector. Finally, we show that firms which are more uncertain about their own price expectations experience higher forecast errors 12 months later. These findings suggest that studying inflation uncertainty at the firm level may be an important new dimension to understanding firm performance