Menu costs are the costs of adjusting prices. They include not just printing menus or labels, but also managerial time, system updates, customer communication, and coordination across channels.
Model Logic
A firm changes price when the gain from resetting exceeds the adjustment cost:
[ \text{Adjust if } \Delta \Pi(\text{new price}) > \kappa ]
where (\kappa) is the menu cost.
Small adjustment costs at firm level can create substantial macro rigidity when many firms delay repricing at the same time.
Why It Matters For Policy
Menu-cost models support the New Keynesian view that monetary shocks can affect real output in the short run because nominal prices do not adjust instantly.
In high-inflation environments, firms reprice more frequently because the cost of inaction rises. In low and stable inflation, repricing intervals typically lengthen.