In high inflation environments, firms tend to adjust prices more frequently—otherwise, their prices would quickly fall out of  -4step with their costs and the prices set by other firms.2 This makes it relatively easy for firms to quickly pass on cost changes to their customers.3, 4 In contrast, firms can make do with less frequent price adjustments when inflation is low.
Rather than being passed on to customers, much of the day-to-day volatility in firms’ costs tends to be absorbed into firms’ profit margins when inflation is low. This lessens the likelihood of feedback into other firms’ costs and prices. It also helps explain why low inflation tends to go hand in hand with less volatile inflation.