The Green Transition and Firms’ Expectations on Future Prices : Survey Evidence

Although firms' expectations on future price dynamics are key for monetary policy, we still lack information on the expected effect of the transition to a net-zero economy on future prices. This paper aims to fill this gap in the literature using survey data collected in the first quarter of 2022 on Italian firms' expectations of the impact of the Fit-for-55 on the prices of the goods and services they purchase. First, it documents that almost half of the sample expects that the Fit-for-55 plan will increase their input costs over the short and medium term, while the rest expects no effect on prices. Then, it shows that the expected impact of the Fit-for-55 on future prices varies with the firm's exposure to energy costs. In contrast, aggregate energy, oil, and gas prices do not enter the expectations formation process, and there are no significant differences in the responses of the firms interviewed before and after the start of the war in Ukraine. Finally, it demonstrates that the expected price impact of the Fit-for-55 predicts firms' pricing and investment decisions such that firms that expect the green transition to raise their inputs' prices in the medium-term increase their selling prices more than the others and are more likely to invest in improving their energy efficiency. These results are confirmed by a propensity score analysis, which suggests that the expected price impact of the green transition might be a relevant driver of firms' choices