Abstract
This paper documents a strong causal relationship between households’ perceptions of inflation over the past 12 months and their short- and long-term expectations about future inflation. Using panel data from a representative online survey for Germany, we show that this relationship is strong during high-inflation periods but even stronger during low-inflation periods. The pass-through strength from perceptions to expectations varies across socioeconomic groups. Our results indicate that differences in individual uncertainty about future inflation and information acquisition are moderating this heterogeneity. Our results have important policy implications. Central banks can influence inflation expectations directly and indirectly by influencing perceptions.
Local Organizer: Emanuele Campiglio