Inflation widens price dispersion most in restaurants
Moving from zero to 10 percent annualized inflation raises inefficient price dispersion by about 73 percent in restaurants and 46 percent in supermarkets, Santiago Alvarez-Blaser finds in a Bank of Spain working paper published October 15, 2026.
Sticky prices magnify distortions
Weekly online prices cover over 60,000 establishments across 18 countries from March 2023 to early October 2025, encompassing nearly 10 million products.
The analysis removes product-specific introduction prices and trends to isolate inefficient dispersion.
Moving from zero to 10 percent annualized inflation increases baseline dispersion by 53.3 percent overall, 72.6 percent in restaurants and 46.1 percent in supermarkets.
The relationship persists at inflation rates of 20 percent.
Product-level estimates of inflation's distortionary effect are positive in 98.5 percent of category-city combinations; 86 percent have t-statistics above 2. Restaurant prices last 15.26 months on average before adjustment, against 4.15 months for supermarket prices.
Consumption losses resist model predictions
With a substitution elasticity of 6, raising annualized inflation from zero to 10 percent implies additional losses of 0.19-0.92 percent of flexible-price consumption.
Estimates vary with inflation frequency and dispersion measure; the cross-country baseline gives 0.58 percent and a 471 percent increase in price-gap variance.
These are rough approximations excluding other inflation costs.
A calibrated standard menu-cost model produces nearly flat, slightly negative inflation-dispersion comovement and fails to match observed price-change kurtosis.
Model fit remains the fault line
The paper challenges models that make additional inflation nearly costless through faster repricing.
Its evidence places stickier services at the center of the welfare calculation.
However, specification choices, noisy product histories and the assumed zero-inflation baseline limit precision in the cost estimates.