Decrease in sector-specific demand volatility reduces inflation sensitivity to aggregate demand.
The article shows that when firms in Japan expect higher demand for their products, it tends to be for both the overall economy and their specific industry. By studying data from Japanese companies, the researchers found that when sector-specific demand is more unpredictable than overall demand, inflation is less affected by changes in the economy. This means that changes in how much people want to buy certain products can impact inflation differently depending on how stable demand is in that sector. The study suggests that from the 1980s to the 2000s, the volatility of sector-specific demand in Japan decreased, leading to inflation being less sensitive to changes in the economy during that time.