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Consumers’ Attitudes and Their Inflation Expectations

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Consumers’ Attitudes and Their Inflation Expectations

Federal Reserve Board,

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Demographics, personal finances and attitudes inform consumers’ expectations about inflation.

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7

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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.

Summary

While forecasters have traditionally studied economic professionals’ expectations about inflation’s trajectory, they now also see consumers’ views as critical harbingers of prices. Households’ demographics, financial situations and purchasing outlooks all contribute to opinions about inflation. A study reveals that individuals who express negative feelings about an upcoming major expenditure – such as on a home, a consumer durable or a vehicle – tend to expect higher inflation. Financially constrained consumers – or those who expect future...

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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