This paper analyzes the effects of the pandemic on the expected changes in firms' own product prices and on their inflation expectations, based on the quarterly survey conducted by the Bank of Italy on a panel of more than one thousand firms. Starting from the March 2020 wave, the questionnaire included specific questions on the channels of transmission of the pandemic for firms'activities and on the expected duration of these effects on firms' businesses and on the aggregate economy.
The more persistent firms consider the impact of the crisis on their own level of activity will be, the lower their expected selling prices. Competitive pressures also attenuate the dynamics of firms' own product prices. Their inflation expectations at one-year, two-year and between three- to five-year horizons are negatively affected by the expected duration of the pandemic's effects on the general economic situation. During the pandemic, pricing strategies were not affected by firms' liquidity and financial conditions, likely benefiting from the fiscal and monetary measures implemented to support economic activity.
