https://www.rba.gov.au/publications/rdp/index.html Research Discussion Papers contain the results of economic research within the Reserve Bank. They are issued throughout the year, with summaries periodically reproduced in the Bulletin. The views expressed in them are those of the authors and do not necessarily reflect the views of the Reserve Bank of Australia. 2026-05-19T09:25:00+10:00 Reserve Bank of Australia en https://www.rba.gov.au/publications/rdp/2026/2026-02.html The sharp rise in inflation following the COVID-19 pandemic has renewed interest in how firms adjust prices after large economic shocks and the implications for modelling inflation and setting monetary policy. Using a large dataset of web-scraped Australian retail prices, we document an increase in the frequency of price changes in 2022 and 2023, alongside strong goods price inflation. We incorporate these microdata-based estimates of price-setting frequency into the Reserve Bank of Australia's dynamic stochastic general equilibrium model to assess their macroeconomic implications. We find that failing to account for higher rates of price adjustment during the high-inflation period leads to inflation forecasts that are up to 1.2 percentage points too low, even when the underlying shocks are known. The increase in the frequency of price resets also steepens the Phillips curve, reducing the policy trade-off between inflation and output. Given knowledge of this change in price-setting behaviour, a hypothetical central bank with unchanged preferences would tend to raise interest rates more aggressively than in a scenario where price rigidity was stable. Our findings highlight the importance of accounting for shifts in price-setting behaviour when interpreting inflation and setting monetary policy. 2026-05-19T09:25:00+10:00 Shifts in Australian Price-setting Behaviour around Large Shocks 2026-05-19 inflation price setting monetary policy Shifts in Australian Price-setting Behaviour around Large Shocks https://www.rba.gov.au/publications/rdp/2026/2026-02.html PDF version Matthew Fink Matthew Fink Jonathan Hambur Jonathan Hambur May 2026 Reserve Bank of Australia Research Discussion Papers RDP 2026-02 E31