How food prices shape inflation expectations and the monetary policy response

Dario Bonciani, Riccardo M Masolo () and Silvia Sarpietro ()
Additional contact information
Riccardo M Masolo: Universitá Cattolica del Sacro Cuore, Milano
Silvia Sarpietro: University of Bologna

No 1094, Bank of England working papers from Bank of England

Abstract: Food price changes have a strong and persistent impact on UK consumers’ inflation expectations. Over 60% of households report that their inflation perceptions are heavily influenced by food prices and display a stronger association between their inflation expectations and perceptions. We complement this finding with a Structural Vector Autoregression (SVAR) analysis, illustrating that food price shocks have a larger and more persistent effect on expectations compared to a ‘representative’ inflation shock. Finally, we augment the canonical New-Keynesian model with behavioural expectations that capture our empirical findings and show that monetary policy should respond more aggressively to food price shocks.

Keywords: Inflation expectations; inflation perceptions; monetary policy (search for similar items in EconPapers)
JEL-codes: D10 D84 E31 E52 E58 E61 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2024-10-11
New Economics Papers: this item is included in nep-agr, nep-ban, nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: How Food Prices Shape Inflation Expectations and the Monetary Policy Response (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1094

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