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Consumers’ Attitudes and Their Inflation Expectations
Report

Consumers’ Attitudes and Their Inflation Expectations

Michael Ehrmann, Damjan Pfajfar and Emiliano Santoro
Federal Reserve Board, 2015
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Editorial Rating

7

Qualities

  • Innovative

Recommendation

Because consumers constitute the backbone of the American economy, input from the man – and woman – on the street matters. And that is especially true of consumers’ outlooks on prices, which can influence inflation’s course and effect on the nation’s economy. Understanding the quirks of people’s inflationary expectations is a challenge that economists Michael Ehrmann, Damjan Pfajfar and Emiliano Santoro handily meet. They scour microdata to determine how well consumers understand the subject, what goes into their assessments and what that implies for policy makers. getAbstract recommends this dry but cogent study to government officials, economists and investors.

Take-Aways

  • Households’ demographics, financial situations and purchasing outlooks all contribute to consumers’ opinions about inflation.
  • Individuals who feel negatively about an upcoming major expenditure tend to expect higher inflation. Financially constrained consumers – or those who expect future financial problems – share this opinion.
  • Consumers regard the rising price of gasoline as evidence for their perceptions that inflation is growing, yet “more intense media coverage” about inflation in general tends to reduce their inflationary expectations.

About the Authors

Michael Ehrmann is chief of economic and financial research at the Bank of Canada. Damjan Pfajfar is an economist with the Federal Reserve Board. Emiliano Santoro is an associate professor of economics at the University of Copenhagen.

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