Estimating the rise in expected inflation from higher energy prices

Paula Patzelt and Ricardo Reis

No 18907, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: When the price of electricity increases by 1%, households' average expected inflation increases by 1.0 to 1.3 basis points. But, if those expectations have become unanchored, as happened between the start of 2021 and 2023, then the effect is higher by 0.2 to 1.6 basis points. This paper arrives at these estimates by exploiting variation both in the time series, and especially in the cross section, from newly-available public data on expected inflation by Euro area households across region, gender, education, and income, and on the cost of energy across region and source. The impact of exogenous shocks to energy prices on expected inflation increases for 8 to 12 months, but they can only account for a small share of the rise in expected inflation in 2021-23.

Keywords: Monetary policy; Inattention (search for similar items in EconPapers)
JEL-codes: D84 E31 Q43 (search for similar items in EconPapers)
Date: 2024-03
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Working Paper: Estimating the rise in expected inflation from higher energy prices (2024)
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