Supermarket Price Setting on the Two Sides of the Atlantic - Evidence from Scanner Data

Abstract

Food-price inflation is more volatile in the US than in the euro area. We utilize a novel supermarket scanner dataset of Germany, Netherlands, France and Italy (EA4), and an equivalent dataset of the US to contrast two contributing factors. First, we document that both the frequency and the size of (sales-filtered) price changes are significantly higher in the US, which indicate a more volatile product-level environment there. Second, we assess the extent of state dependence in price setting. This can be an additional source of price flexibility through the endogenous selection of large price changes (Golosov and Lucas, 2007; Caballero and Engel, 2007). The unparalleled granularity of the data allows us to measure the necessary data-moments directly. We show that price setting is state-dependent, but state dependence raises price flexibility similarly mildly in both regions. The evidence is well represented by a state-of-the-art price-setting model (Woodford, 2009). We also provide new evidence on the response of supermarket price-setting to the Covid shock in Germany and Italy.

Pascal Seiler
Pascal Seiler
PhD candidate and Consultant