The effect of information on consumer inflation expectations
Gepubliceerd: 29 april 2024
Door: Daria Minina Gabriele Galati Richhild Moessner Maarten van Rooij
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
810 - The effect of information on consumer inflation expectations
Research highlights
- We use data from a representative Dutch household survey to shed new light on how information on current and past inflation rates, as well as the ECB’s inflation target affects consumers’ inflation expectations.
- Providing this information brings reduces the upward bias in households’ short- and long-term inflation expectations and brings them closer to the inflation target.
- The effect of information provision is similar between times of normal economic activity and periods of large shocks, such as the start of the Covid-19 pandemic.
- Our analysis underscores the importance of predictable, clear and simple communication by monetary authorities, which would help bringing household inflation expectations more in line with the inflation target.
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