Indirect Consumer Inflation Expectations

RePEc Short ID: pha1454
ORCID iD: 0000-0002-5982-0914

Hajdini, Ina; Knotek, Edward S.; Leer, John; Pedemonte, Mathieu; Rich, Robert W.; Schoenle, Raphael

doi:10.26509/frbc-ec-202203

Journal Article

Indirect Consumer Inflation Expectations

Abstract: Surveys often measure consumers’ inflation expectations by asking directly about prices in general or overall inflation, concepts that may not be well-defined for some individuals. In this Commentary, we propose a new, indirect way of measuring consumer inflation expectations: Given consumers’ expectations about developments in prices of goods and services during the next 12 months, we ask them how their incomes would have to change to make them equally well-off relative to their current situation such that they could buy the same amount of goods and services as they can today. Using a massive number of survey responses at a high frequency, we show that this measure of indirect consumer inflation expectations has risen sharply since early 2021. Higher inflation experiences correlate with higher indirect consumer inflation expectations across US cities and around the world.

Keywords: inflation;

https://doi.org/10.26509/frbc-ec-202203