I’m wondering if anyone has done any research into/has had any success in accounting for inflation in their price elasticity modelling? Given the sharp rise in fuel, energy and food prices over the past few months, an item that was once quite elastic may now be very elastic, especially when considering luxury items.
I.e. a small price increase of a luxury product in today’s financial climate may result in a greater drop in demand than it would have previously.
If you build an elasticity model on many year’s worth of historical sales data, should you weight recent data more favourably to account for this sort of behaviour? Is there an alternative way to account for inflation?