DP21035 The Value of Pricing Power When Investors Benchmark to Headline Inflation
Inflatie
We study equity valuation when investors benchmark firms against headline inflation although pass-through varies across firms. In standard valuation, inflation is valueneutral even with heterogeneous pass-through if investors use firm-specific inflation. Benchmarking to headline inflation conflates nominal cash-flow growth with real performance and shifts discount rates at inflation announcements. Pricing power shapes both channels by enabling greater pass-through and reducing perceived
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