ECB Study Finds ‘Pricing Cascades’ Can Cause Inflationary Wave

A relatively contained price shock can trigger a massive inflationary episode if it hits a closely connected network of firms, according to research by the European Central Bank.

That’s because of the chain reactions rippling through supply lines, where one firm’s output charges are another’s input costs, ECB economist Anton Nakov and Mishel Ghassibe, who works at the Center for Research in International Economics in Barcelona, wrote in an article published Tuesday on the ECB’s website.