Price Formation and Inflation Multiplier

Although inflation has been defined as the rise of prices, the reverse question also makes sense. How does inflation influence price formation? There is a certain inutuality between inflation, which is a macroeconomic phenomenon, and price setting, which is the ;esult of microeconomic decisions, by economic agents. Economic theory formalizes this kind of relation with a multiplier. The construction of such a multiplier is conditioned by an analysis of the diversified price formation that occurs in different groups of goods. If there is long-term moderate inflation,' price formation is strongly impacted by the overall inflation trend. But there is no evidence that the overall inflation trend should be the only parameter of price setting. Considering the changes in relative prices-besides the fact that price dynamics result from various causes that are more or less connected with the inflation-the separation of overall inflation trends from other price setting parameters is possible and useful. Economic theory has devoted much attention to the macroeconomic treatment of inflation. But price setting is primarily a result of microeconomic decisions and the activities of individuals, whereas macroeconomic conditions are only the surroundings that influence but do not