The influence of supermarket prices on consumer inflation expectations

Chew Lian Chua and Sarantis Tsiaplias

Journal of Economic Behavior & Organization, 2024, vol. 219, issue C, 414-433

Abstract: Using data on the inflation expectations of 85 thousand consumers and a unique data set of price changes at Australian supermarkets, we show that consumers form inflation expectations that are excessively influenced by particular elements of the cross-sectional distribution of price changes. The estimates provide novel evidence that the right tail of supermarket price changes, which has largely been ignored in the literature to date, is a material factor in explaining inflation expectations. The right tail of supermarket price changes materially raises inflation expectations, particularly for lower income households, leading to the presence of income-dependence in the expectation formation process. The results shed new light on the informativeness of cross-sectional supermarket price changes for consumer beliefs about inflation.

Keywords: Consumers; Supermarket prices; Inflation expectations; Rational inattention; Cognitive limitations (search for similar items in EconPapers)
JEL-codes: D12 D22 E30 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:219:y:2024:i:c:p:414-433

DOI: 10.1016/j.jebo.2024.01.022

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