Public perceptions of inflation: causes, consequences, and policy preferences
Binetti et al. in this paper, study “people’s understanding of inflation–their perceived causes, consequences, trade-offs–and the policies supported to mitigate its effects.” Towards that end they conducted a large-scale online survey with 2,264 respondents in the United States between March and May 2024. The survey included questions on perceptions of inflation causes, consequences, distributional impacts, and policy preferences. The study incorporated two experimental components: a) a conjoint experiment to estimate preferences over inflation and unemployment; b) an information experiment providing details about trade-offs between inflation and economic activity.
The main findings include:
- Perceived Causes of Inflation:
– The main perceived causes were government actions (67%), especially increased foreign aid and war-related expenditures, and increases in production costs (43%) due to factors like the COVID-19 pandemic and supply chain disruptions.
– Republicans were more likely to blame the government and Federal Reserve, while Democrats blamed businesses more. - Perceived Consequences:
– The most significant perceived consequence was increased complexity in household decision-making (85% of respondents).
– Other major consequences included shoe-leather costs, decreased trust in government, lower GDP growth, and increased uncertainty for households. - Distributional Impacts:
– 84% believed low-income people lose more from inflation compared to 25% for high-income people.
– Respondents perceived that those without savings and small firms suffer more from inflation than those with savings and large firms. - Trade-offs and Economic Understanding:
– Many respondents showed misunderstandings about basic economic relationships, such as the effects of interest rate increases on inflation.
– There was little perceived trade-off between inflation and economic activity or unemployment. - Policy Preferences:
– Respondents considered inflation a high policy priority.
– In the conjoint experiment, people assigned a higher weight to inflation than unemployment, especially for very high inflation values.
– There was little support for monetary tightening measures to combat inflation.
– Support was high for policies to help vulnerable groups deal with inflation, especially among Democrats and lower-income respondents. - Information Experiment:
– Providing information about trade-offs slightly improved understanding that inflation could result from positive developments.
– However, it failed to alter perceptions about policymakers’ constraints or shift support for specific anti-inflationary policies. - Demographic Differences:
– Significant partisan gaps were observed in perceptions of inflation causes, consequences, and policy preferences.
– Higher-income and older respondents generally perceived more negative consequences from inflation.
People’s Understanding of Inflation
Authors: Alberto Binetti, Francesco Nuzzi, Stefanie Stantcheva
From: Bocconi University, Harvard University
