Examining the Behaviour of Individual UK Consumer Prices
This article examines how UK consumer prices behave, using two databases with millions of price observations: the microdata that underpin official Consumer Prices Index data and a database of supermarket prices. Prices do not change continuously but our key finding is the marked heterogeneity in the data. That is not consistent with standard microeconomic foundations that typically form the basis of macroeconomic policy models. Declining hazard functions and the distribution of price changes also argue against representative agent models. Our results suggest further work is needed to find a model of price‐setting that genuinely corresponds to how individual UK consumer prices behave.