00:00Is the idea that if we keep getting transitory shock after transitory shock, I think you've used
00:05the word mini waves of inflationary bouts over and over and over again, expectations will be
00:10more vulnerable towards higher inflation levels. So people will be even more worried about inflation
00:16once we get like the third shock and the fourth shock. That's right. And the size of the shock
00:21matters too. So inflation was 11% a couple of years ago. That was on the front page of every
00:26newspaper. Households kind of knew about it. They saw it at the grocery store. So we've
00:30done a lot of research showing that households and businesses are possibly just more attentive
00:35to inflation. And particularly once inflation comes within a certain band. So there's a
00:40threshold. It used to be no one paid attention to inflation if it was below 4%. That band
00:46has actually shifted down. So in the UK, we think that if inflation is somewhere between
00:503%, 3.5%, that's the threshold at which people actually notice it a lot more. So if you then
00:56have another negative supply shock and inflation go up, people will be much more sensitive to
01:01that. We also have done research showing that people are more sensitive to upside surprises
01:05and inflation than downside surprises and inflation. And so that's a concern given we're now facing
01:11rising inflation. And then for firms, when they're looking at inflation, it used to be, you know,
01:17before we had these supply shocks that firms kind of set prices on a schedule. And since the
01:22pandemic, they've shifted much more to state dependent pricing. So when inflation gets higher,
01:27they set prices more often and pass through their higher costs through the end user in the form of
01:33higher prices. And that that's remained. So if you have more state dependent pricing from firms,
01:39then actually you can get a pass through from inflation expectations for them much more quickly.
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