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Perceptions and expectations of price changes and inflation: A review and conceptual framework

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  • Ranyard, Rob
  • Missier, Fabio Del
  • Bonini, Nicolao
  • Duxbury, Darren
  • Summers, Barbara

Abstract

Drawing on relevant literature from a diverse range of academic disciplines we present a conceptual framework intended to further our understanding of perceptions and expectations of price changes and inflation. Based on this framework, we provide a detailed review of the literature and an analysis of open issues in current research. The review is primarily concerned with individuals' perceptions and expectations of price changes and inflation, which can influence individuals' economic behaviour (e.g. spending and saving decisions). The main insight from the review is that while consumers may have a limited ability to store and recall specific prices, and even succumb to a number of biases in the way in which they form perceptions and expectations of global price changes, they do seem to have some feel for, and ability to judge and forecast, inflation. How they achieve this, however, is still an open question, although plausible explanations have been proposed. While much important research has been undertaken and significant progress made in our understanding of the psychology of inflation, there remain many unanswered questions and interesting avenues for future research, which are discussed in the final part of the paper.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 29 (2008)
Issue (Month): 4 (August)
Pages: 378-400

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Handle: RePEc:eee:joepsy:v:29:y:2008:i:4:p:378-400

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Citations

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Cited by:
  1. Menz, Jan-Oliver & Poppitz, Philipp, 2013. "Households' disagreement on inflation expectations and socioeconomic media exposure in Germany," Discussion Papers 27/2013, Deutsche Bundesbank, Research Centre.
  2. Lunn, Pete & Duffy, David, 2010. "The Euro Through the Looking-Glass: Perceived Inflation Following the 2002 Currency Changeover," Papers WP338, Economic and Social Research Institute (ESRI).
  3. Bruine de Bruin, Wändi & van der Klaauw, Wilbert & Topa, Giorgio, 2011. "Expectations of inflation: The biasing effect of thoughts about specific prices," Journal of Economic Psychology, Elsevier, vol. 32(5), pages 834-845.
  4. Duffy, David & Lunn, Pete, 2008. "The Misperception of Inflation by Irish Consumers," Papers WP261, Economic and Social Research Institute (ESRI).
  5. Antonides, Gerrit, 2008. "How is perceived inflation related to actual price changes in the European Union?," Journal of Economic Psychology, Elsevier, vol. 29(4), pages 417-432, August.
  6. Georganas, Sotiris & Healy, Paul J. & Li, Nan, 2014. "Frequency bias in consumers׳ perceptions of inflation: An experimental study," European Economic Review, Elsevier, vol. 67(C), pages 144-158.
  7. van der Cruijsen, Carin A.B. & Eijffinger, Sylvester C.W., 2010. "From actual to perceived transparency: The case of the European Central Bank," Journal of Economic Psychology, Elsevier, vol. 31(3), pages 388-399, June.
  8. Wilbert van der Klaauw & Wändi Bruine de Bruin & Giorgio Topa & Simon Potter & Michael Bryan, 2008. "Rethinking the measurement of household inflation expectations: preliminary findings," Staff Reports 359, Federal Reserve Bank of New York.
  9. Wändi Bruine de Bruin & Simon Potter & Robert Rich & Giorgio Topa & Wilbert van der Klaauw, 2010. "Improving survey measures of household inflation expectations," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 16(Aug/Sep).
  10. Azar, Ofer H., 2013. "Competitive strategy when consumers are affected by reference prices," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 327-340.
  11. Huber, Odilo W., 2011. "Frequency of price increases and perceived inflation. An experimental investigation," Journal of Economic Psychology, Elsevier, vol. 32(5), pages 651-661.
  12. Gärling, Tommy & Gamble, Amelie & Christandl, Fabian, 2013. "Income increases do not compensate for perceived inflation—A price-consumption anomaly," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 11-15.
  13. Duxbury, Darren & Summers, Barbara & Hudson, Robert & Keasey, Kevin, 2013. "How people evaluate defined contribution, annuity-based pension arrangements: A behavioral exploration," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 256-269.
  14. Wändi Bruine de Bruin & Wilbert van der Klaauw & Julie S. Downs & Baruch Fischhoff & Giorgio Topa & Olivier Armantier, 2010. "The effect of question wording on reported expectations and perceptions of inflation," Staff Reports 443, Federal Reserve Bank of New York.
  15. Delphine Irac & Nicolas Herpin & Claire Célérier & Jérôme Accardo, 2011. "L'inflation perçue," Économie et Statistique, Programme National Persée, vol. 447(1), pages 3-31.
  16. Yuxiang, Karl & Chen, Zhongchang, 2010. "Monetary policy credibility and inflationary expectation," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 487-497, August.
  17. Bruine de Bruin, Wändi & van der Klaauw, Wilbert & Topa, Giorgio & Downs, Julie S. & Fischhoff, Baruch & Armantier, Olivier, 2012. "The effect of question wording on consumers’ reported inflation expectations," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 749-757.

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