Can the News Drive Inflation Expectations?

Kmetz, Augustus; Shapiro, Adam Hale; Wilson, Daniel J.

Journal Article

Can the News Drive Inflation Expectations?

Abstract: How households expect inflation to evolve plays an important role in explaining overall inflation dynamics. Household expectations rose dramatically over the past year or so, much faster than professional forecasters’ inflation expectations. News coverage can explain part of this growing gap. Analyzing the volume and sentiment of daily news articles on inflation suggests that one-fourth of the increased gap between household and professional expectations can be attributed to heightened negative media coverage. These results highlight the important impact of the content and tone of economic information on the real economy.

Keywords: inflation expecftations; news;