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Inflation expectations and the price at the pump

Carola Binder ()

Journal of Macroeconomics, 2018, vol. 58, issue C, 1-18

Abstract: Consumer inflation expectations are positively correlated with gas prices. The optimal monetary policy response to energy price fluctuations depends on whether inflation expectations are excessively sensitive to gas prices, perhaps due to their high volatility and salience. I use multi-horizon microdata to study the dynamics of consumers’ gas price and inflation expectations. Consumers do not “overweight” gas prices in their perception of inflation, relative to the expenditure share of gas. They believe gas price inflation is negatively autocorrelated and feeds into core inflation moderately. The impact of gas prices on inflation expectations fades quickly with forecast horizon.

Keywords: Gas prices; Energy prices; Inflation expectations; Consumers; Monetary policy (search for similar items in EconPapers)
JEL-codes: D84 E31 E52 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.jmacro.2018.08.006

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