Micro-level Mechanisms of Inflation Formation: The Interaction Between Firm Pricing Behavior and Household Inflation Expectations

Traditional inflation research has mainly focused on the macro transmission of the inflation channel, but has paid insufficient attention to the micro interaction characteristics among economic agents. This study believes there exists a dynamic coupling relating among corporate pricing strategy and household inflation expectations. By using the empirical data of Bank of Canada's Household Survey and US Consumer Confidence Index, this study examines their relationship and operational mechanisms. Households differ significantly in their requested price increases based on education and income levels. This divergence results in large differences in consumption patterns, which similarly affects the setting of price levels, thus forming a closed-loop phenomenon of "expectations-pricing-revisited expectations", and the effects of policy intervention are increasingly difficult to predict. In this context, it is necessary to account for individual differences and improve public trust through two-way communication. This enhances resource allocation efficiency and strengthens macroeconomic stability on a broader scale. By exploring inflation formation based on micro-interactions, this study aims to establish a new theoretical and empirical foundation for inflation governance.