 Can Higher Gasoline Prices Set Off an Inflationary Spiral?Nida Cakir Melek, Francis Dillon and Andrew Smith Economic Review, 2022, vol. 107, issue no.4 Abstract: In early 2022, with consumer price inflation already high, a spike in the price of gasoline increased public concerns that the U.S. economy could be in for a repeat of the inflationary spiral that gripped the nation in the 1970s and 1980s. During this period, energy price increases created an environment where rising inflation and rising inflation expectations reinforced one another until a deep economic contraction broke the feedback loop. Nida Çakır Melek, Francis M. Dillon, and A. Lee Smith assess the risk of a similar spiral in the current environment by exploring whether high inflation makes consumers’ inflation expectations more responsive to salient price increases—namely, higher gasoline prices. They find that in response to an increase in the national price of gasoline, individuals with higher initial inflation expectations revise up their one-year-ahead inflation forecasts by almost twice as much as those with lower initial inflation expectations. With inflation currently high and consumers’ inflation expectations elevated, their results suggest that changes in salient prices could indeed have an amplified effect on inflation expectations. Keywords: gasoline; prices; inflation; consumers (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedker:95029 Ordering information: This journal article can be ordered from DOI: 10.18651/ER/v107n4CakirMelekDillonSmith Access Statistics for this article More articles in Economic Review from Federal Reserve Bank of Kansas City Contact information at EDIRC. |
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