Sector-Specific Household Inflation Uncertainty and Monetary Policy

Philip Schnattinger and Prachi Srivastava

No 772, Working Papers from University of Heidelberg, Department of Economics

Abstract: We study the drivers of household inflation uncertainty using microdata from the Federal Reserve Bank of New Yorks Survey of Consumer Expectations from 2013 to 2025. Exploiting rounding behavior in sectoral price forecasts, we construct household-level measures of inflation uncertainty for food, gasoline, rent, medical care, and education. Combining these measures with BLS micro-price dispersion, we document a transmission channel from sectoral price dispersion to household sector-specific uncertainty and, ultimately, to aggregate inflation uncertainty. Food-price uncertainty explains the largest share of aggregate uncertainty, while gasoline uncertainty becomes increasingly important after 2020. Using identified monetary policy shocks, we show that contractionary policy lowers sector-specific inflation uncertainty and compresses price-change dispersion almost exclusively in food and gasoline. We interpret these findings through a noisy-information two- sector New Keynesian model in which price dispersion affects the precision of households price signals. With its transmission parameters estimated on these empirical responses, the model implies that optimal policy differs across moments: central banks should look through flexible food and gasoline price-level fluctuations, but lean against uncertainty originating in these sectors, while placing greater weight on price-level stabilization in stickier sectors.

Keywords: Inflation Uncertainty; Household Expectations; Monetary Policy; Food Prices (search for similar items in EconPapers)
Date: 2026-11-04
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