Consumers’ inflation expectations

How consumers form their beliefs on inflation

D’Acunto and al. collected novel micro data for a representative US sample that uniquely match individual expectations, detailed information about consumption bundles, and item-level prices. They found that consumers rely on the price changes they face in their daily lives while grocery shopping. As a result, they concluded, what matters for consumers’ inflation expectations are the frequency and size of price changes, rather than their expenditure share.

Exposure to Daily Price Changes and Inflation Expectations
Authors: Francesco D’Acunto, Ulrike Malmendier, Juan Ospina, Michael Weber
From: Boston College, University of California at Berkeley, Banco de la Republica de Colombia, University of Chicago

The missing inflation in Japan

Aoki and al. develop a dispersed information model in which when consumers believe that prices are low and stable everywhere, they have a greater incentive to look for cheaper prices. As a result, firms are reluctant to pass through an increase in costs, since they fear a disproportionately large fall in their sales. A history of low and stable inflation amplifies this effect by anchoring consumers’ price beliefs to a lower level.
Consumers’ Price Beliefs, Central Bank Communication, and Inflation Dynamics
Authors: Kosuke Aoki, Hibiki Ichiue, Tatsushi Okuda
From: University of Tokyo, Bank of Japan