Are Real Assets Owners Less Averse to Inflation? Evidence from Consumer Sentiments and Inflation Expectations

Geng Li and Nitish R. Sinha
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Nitish R. Sinha: https://www.federalreserve.gov/econres/nitish-r-sinha.htm

No 2023-058, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Using data from the University of Michigan Surveys of Consumers, we document a significant negative association between consumer sentiment and inflation expectations, controlling for prevailing inflation in the economy. We further show that consumer sentiments of homeowners and stockowners are more sensitive to expected inflation than those of other consumers, a disparity at odds with the notion that owning such assets provides hedges against inflation. Leveraging data from the Survey of Consumer Expectations, we find three factors that help account for this difference. First, assets owners' outlook for the broad economy seems to be more sensitive to their inflation expectations than other consumers' outlook. Second, assets owners appear to expect income growth to lag spending growth by a wider margin than other consumers and that margin widens with inflation expectations. Third, homeowners' inflation expectations tend to be less variable and less volatile than those of renters, which may allow the former to have a greater bearing on consumer sentiments.

Keywords: Inflation expectations; Consumer sentiments; Homeownership; Stockownership; Rational inattention; Inflation targeting (search for similar items in EconPapers)
JEL-codes: D84 E31 E52 E58 G11 G41 R21 (search for similar items in EconPapers)
Pages: 46 p.
Date: 2023-08-31
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-58

DOI: 10.17016/FEDS.2023.058

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