Consumer Wealth and Price Expectations

Rodrigo Dias (), Gavan Fitzsimons () and Eesha Sharma ()
Additional contact information
Rodrigo Dias: https://www.colorado.edu/business/leeds-directory/rodrigo-dias
Eesha Sharma: https://business.sdsu.edu/about/directory/esharma

No 25-23, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Prices have reached record-high levels, and inflation is one of the primary concerns for consumers worldwide. Interestingly, changes in prices are in part a self-fulfilling prophecy: if consumers expect prices to rise, prices will rise. Moreover, consumers’ future price expectations influence policymaking, firms’ decisions, and consumer choice. Across 11 studies (N = 289,437), including a nine-wave longitudinal survey, a multinational study in twelve countries, a multidecade study with 250,000+ consumers, and multiple experiments, we show that consumers who feel more financially constrained expect future prices to be higher, compared to consumers who feel less financially constrained. We demonstrate that this effect is driven by pain of paying: financially constrained consumers experience greater pain when paying for purchases, causing them to expect higher prices in the future. Accordingly, this effect is stronger in product categories, countries, and historical periods in which paying for purchases is especially painful. Finally, we show that consumers’ future price expectations are consequential, predicting stockpiling and a preference for fixed-price contracts among financially constrained consumers. Overall, the current work underscores the role of future price expectations as a driver of consumer behavior, demonstrates how these expectations are formed, and offers insights for consumers, marketers, and policymakers.

Keywords: inflation; financial constraints; pain of paying; inflation expectations; consumer finances (search for similar items in EconPapers)
Pages: 89
Date: 2025-08-14
New Economics Papers: this item is included in nep-mac and nep-mon
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DOI: 10.21799/frbp.wp.2025.23

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