The effect of information on consumer inflation expectations

This paper examines how information provision affects consumers’ inflation expectations. Using data from a representative Dutch household survey, we document that providing information about current and past inflation rates, as well as the ECB’s inflation target, brings inflation expectations closer to the target and reduces the upward bias typically found in the literature. The beneficial effect of information holds across various types of inflation expectations and time horizons. We also find that consumers' reactions to information are heterogeneous, with women, respondents with low levels of education and income, and renters showing stronger reactions to information provision. Finally, we observe that the effect of information provision on inflation expectations in times of normal economic activity is similar to its effects during periods of large economic shocks such the start of the Covid-19 pandemic, the Ukraine war and the start in 2022 of the monetary tightening cycle following a strong increase in inflation.

Keywords: inflation expectations; shocks; information acquisition; monetary policy;
JEL codes D10; D84; D90; E31; E52;

Working paper no. 810