BUSINESS INFLATION EXPECTATIONS AS A FACTOR OF THE STATE’S FINANCIAL SECURITY MANAGEMENT UNDER EXISTENTIAL SHOCKS

Abstract

This article examines the mechanisms underpinning the formation of inflation expectations among Ukrainian firms, emphasizing how these processes adjust under existential shocks such as the COVID-19 pandemic and the full-scale invasion. The research is motivated by the critical role expectations play in monetary policy transmission and the safeguarding of state financial security when external disruptions reshape behavioral patterns within the business sector. The study aims to empirically substantiate how firms generate expectations in turbulent conditions and determine the extent to which they depend on retrospective inflation and shock-related factors.
The study employs a structured analytical approach, utilizing ARDL models and dummy variables to represent pandemic- and war-related disruptions. The empirical results reveal a consistently adaptive pattern of expectation formation, where past expectations dominate current assessments. Both the Consumer Price Index (CPI) and Producer Price Index (PPI) influence expectations, albeit with differing temporal profiles: consumer inflation exerts effects over several quarters, while producer prices have a more concentrated impact. Notably, the pandemic weakened the role of price indicators, whereas the wartime environment strengthened the influence of security-related uncertainty, partially detaching expectations from actual inflation.
The study concludes that the inertia and shock sensitivity of inflation expectations require financial authorities to integrate behavioral responses into policy design. For effective financial security management, the findings underscore the importance of consistent communication, credible signaling, and the proactive identification of non-economic risks that shape corporate perceptions of future inflation.