Inflated concerns: Exposure to past inflationary episodes and preferences for price stability

Using individual-level surveys for 42 countries (advanced economies and emerging markets and developing economies) spanning about 40 years, we show that cohorts with higher exposure to past inflationary episodes systematically express higher concerns over inflation. This link is stronger for women and poorer individuals; when exposure occurs in the latter part of the individual’s working-age (lifecycle theory); and it diminishes with individuals’ trust in institutions. Country characteristics also affect the link between past inflation exposure and inflation concerns—it is amplified by macroeconomic instability, and reduced with institutions’ quality, aggregate income, and democratic development. Higher contemporaneous inflation affects inflation concerns but does not increase the sensitivity of inflation concerns to past experience. In turn, inflation concerns have macroeconomic implications, as inflation expectations are more responsive to inflationary shocks in countries where concerns about inflation are more entrenched. This could potentially affect central banks’ ability to anchor inflation expectations.