People’s Understanding of Inflation
Report

People’s Understanding of Inflation

Alberto Binetti, Francesco Nuzzi and Stefanie Stantcheva
Social Economics Lab, 2024
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8

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Inflation and its obverse, deflation, are critical elements in the long-run dynamism of the US economy, because they affect individuals’ and businesses’ spending, saving, and investing. In this authoritative research analysis, academics Alberto Binetti, Francesco Nuzzi, and Stefanie Stantcheva examine how US consumers and businesses shape their views of prices and what impacts those views have on their financial decisions. This valuable report offers a robust assessment of stakeholder perceptions and insights on inflation.

Summary

High inflation creates financial uncertainty for businesses and consumers in their purchasing and capital allocation decisions.

US inflation and price levels are currently significantly higher than consumers and business leaders are accustomed to experiencing. At a macro level, economic stakeholders tend to view high inflation adversely, as elevated price levels alter the purchasing, saving, and investing decisions of households and businesses.

Stakeholders associate high inflation with negative economic events, including systemic financial risks, growth constraints, and commodity price disturbances. The punishing effects of elevated inflation on purchasing power prove more severe for lower income households...

About the Authors

Stefanie Stantcheva is a professor of economics at Harvard University, where Alberto Binetti and Francesco Nuzzi are PhD candidates.

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