Low Pass-Through from Inflation Expectations to Income Growth Expectations: Why People Dislike Inflation

Ina Hajdini, Edward S Knotek, John Leer, Mathieu Pedemonte, Robert Rich and Raphael Schoenle

No 13937, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Using a large, nationally representative survey of US consumers, we estimate a causal 20 percent pass-through from inflation expectations to income growth expectations for the average consumer, with considerable heterogeneity in pass-through associated with sociodemographic factors. The results also indicate that higher inflation expectations cause an increase in consumers' likelihood to search for higher-paying jobs but do not change the likelihood of asking for a raise, suggesting that consumers recognize significant wage rigidity with their current employer. In a calibrated search-and-matching model, we find that demand and supply shocks combined with incomplete pass-through produce a strong negative relationship between expected inflation and expected utility. Taken together, the survey results and model analysis provide a labor market account of why people dislike inflation.

Keywords: Inflation; Wage-price spiral; Expectations; randomized controlled trial (search for similar items in EconPapers)
JEL-codes: C83 E24 E31 E71 (search for similar items in EconPapers)
Date: 2025-01
New Economics Papers: this item is included in nep-mon and nep-upt
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Related works:
Working Paper: Low Passthrough from Inflation Expectations to Income Growth Expectations: Why People Dislike Inflation (2023)
Working Paper: Low Passthrough from Inflation Expectations to Income Growth Expectations: Why People Dislike Inflation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:13937

DOI: 10.18235/0013365

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