Inflation's Blind Spot: How Corporate Misjudgments Are Shaped by Outdated Data and Media Bias

By: Rohan Balakrishnan

Eastside Prep

Why Companies Misjudge Inflation

Executives should reconsider their reliance on mainstream sources

In the last 18 months, inflation has significantly declined across many developed nations. While some central banks have cautiously begun reducing interest rates, they remain hesitant to declare victory. Core inflation, which excludes volatile elements like energy and food, remains stubbornly high—3.2% in the United States and 2.9% across the Eurozone. This persistence highlights that the journey to stabilizing prices is far from complete. As financial markets grow increasingly volatile and economic momentum slows, the final stretch of this journey is proving to be particularly challenging.

In the past, policymakers have been concerned about inflation expectations becoming “unanchored”—that is, prolonged periods of high inflation could lead both households and companies to expect continued price increases. This expectation is particularly dangerous as it can become self-fulfilling; workers may demand higher wages to keep up with perceived future inflation. While much of the focus has been on household expectations, recent research has shifted towards understanding how companies respond to inflation. The findings are revealing and provide fresh perspectives on why the last leg of the inflation battle is so arduous.

The Influence of Outdated Information

Businesses need to update their sources to stay competitive

At first glance, it seems logical to assume that companies have a solid grasp of where inflation is heading. They have access to frequent data on input costs and customer spending habits, and they have strong incentives to stay informed. A company that cannot anticipate its competitors' pricing strategies is likely to struggle. However, despite these advantages, corporate decision-makers appear to be heavily influenced by outdated and backward-looking data, particularly from national statistics agencies.

A recent study by economists Ivan Yotzov of the Bank of England, Nicholas Bloom of Stanford University, and others examined how firms reacted to inflation between 2022 and 2024. By analyzing responses to the Decision Maker Panel—a monthly survey of British executives—they found that unexpected rises in consumer price index (CPI) inflation significantly altered companies' expectations about future inflation. This influence persisted for weeks after the initial CPI release. Interestingly, this pattern of behavior isn't unique to the UK; similar results have been observed in other countries, indicating a broader trend of businesses reacting to outdated information.

The Media’s Role in Shaping Perceptions

Corporate leaders need to be critical of media narratives

The media's influence on corporate inflation expectations is significant and often underappreciated. Research has shown that companies are heavily swayed by the frequency of inflation-related stories in the press. For example, Yotzov and Bloom constructed an index measuring the prevalence of inflation discussions in British media. They found that increased media coverage of inflation was correlated with higher inflation expectations among businesses, even when the actual economic data did not support such pessimism.

This suggests that firms may rely more on media reports than on direct data from official sources. The problem is exacerbated by the media's tendency to focus on negative stories—often summed up by the phrase "if it bleeds, it leads." This bias leads to disproportionate coverage of rising inflation, while periods of falling inflation receive less attention. Consequently, companies may develop a distorted view of the economy, which could influence their pricing strategies and long-term planning.

Corporate Inattention to Economic Trends

Despite having access to a wealth of information, corporate leaders often display surprising levels of ignorance regarding economic developments. A study by researchers from the University of California, Berkeley, and the University of Texas at Austin found that less than 20% of chief executives could correctly identify the Federal Reserve’s inflation target. Moreover, two-thirds of managers were unable or unwilling to speculate on what inflation had done in the past year—despite this being public information.

This “systematic inattention” to critical economic indicators highlights a disconnect between the skills required for corporate success and those needed to navigate economic challenges. As inflation remains a key concern for businesses worldwide, it is crucial for leaders to improve their understanding of economic trends and to make decisions based on reliable, up-to-date information rather than relying on media-driven narratives or outdated data.