The pass-through from inflation perceptions to inflation expectations

Stefanie Huber, Daria Minina and Tobias Schmidt

No 17/2023, Discussion Papers from Deutsche Bundesbank

Abstract: This paper documents a strong relationship between households' perceptions about inflation over the past 12 months and households' short- and long-term expectations about future inflation. This relationship is strong during periods of high-inflation but even stronger during low-inflation periods. We establish a causal relationship by implementing a randomized information provision experiment in a large and representative survey to generate an exogenous variation in inflation perceptions. Our results show that household perceptions about past inflation drive their expectations about future inflation rates. The strength of the pass-through from perceptions to expectations varies across socioeconomic groups. We identify two critical moderating factors for this heterogeneity; differences in individual uncertainty about future inflation and information acquisition. Further, we show that the large majority of households rely on their shopping experience when forming their perceptions about past inflation and pay particular attention to food and fuel prices. The shopping experience affects inflation expectations indirectly - through perceptions.

Keywords: inflation dynamics; expectations; perceptions; uncertainty; household finance; monetary policy; randomized control trial (search for similar items in EconPapers)
JEL-codes: D10 D84 D90 E31 E52 G40 G50 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:172023

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